Los Angeles County officials have started to quietly acknowledge that scams by their employees and recipients of services may be costing taxpayers as much as $2 billion a year.

While there are no exact figures, the county's Grand Jury last summer estimated welfare recipients are defrauding taxpayers of $500 million a year. Prosecutors have estimated fraud in the food stamp, in-home care and health-care programs cost more than $200 million.

"It's as though in all the public assistance programs - be it welfare, food stamps, child care or Section 8 housing - someone put a pot of gold in the middle of the street and walked away from it with very little integrity controls," said James Cosper, head deputy in the District Attorney's Office Welfare Fraud Division.

"It's bad throughout the entire county. ... We do two or three major sweeps a year where we go out and arrest people. In case after case, they are driving Beemers, Lexus and Mercedes automobiles, or we have evidence they are taking expensive vacations, going on very nice cruises or living in expensive homes."

It's not just recipients of services who are defrauding the county. The National Association of Certified Fraud Examiners estimates 5 percent of the revenues of businesses and government agencies are lost to employee fraud, waste and abuse each year.

That would mean L.A. County government, with a $21 billion budget, loses at least $1 billion a year.

Investigations of county employee fraud have surged from 340 in 2000 to 583 in 2005 amid increased calls to a county fraud hot line. Calls to the hot line hit 621 in 2003-04 and are projected to reach 1,000 this fiscal year.

"(Fraud is) a tremendous problem," said Tony Bell, spokesman for Supervisor Michael D. Antonovich, who created the hot line in 1988 that is credited with saving taxpayers $13.5 million.

"It's a problem that our office has targeted as a high priority. And we're working with the district attorney to increase the number of investigations."

The acknowledgment that county fraud is a growing problem follows a warning three years ago by the Citizen's Economy and Efficiency Commission about costly workers' compensation fraud.

Since then, officials have reduced county workers' compensation abuses from $324 million in 2003-04 to $263 million in the last fiscal year.

Some officials have begun to take more seriously the warnings of the grand jury, prosecutors and the commission about a "culture of entitlement" among county employees and recipients of county services.

"I think at this point very few people could deny that there is very much a culture of corruption in the county of Los Angeles, both from the public sector side, and certainly with the entitlement mentality on the recipient side," said Jon Coupal, president of the Howard Jarvis Taxpayers Association.

Still, some county officials disagree that there is a culture of corruption.

"We have systems in place that try to prevent it from happening," Assistant Chief Administrative Officer Sharon Harper said.

Some experts said that simply because of its size, Los Angeles County is a prime candidate for fraud.

"The very largest organizations and the very smallest organizations are the ones that get hit the most," said Sarah Carson, president of the Los Angeles chapter of the fraud examiners' association. "The bigger organizations, where so much money is involved, are the prime candidates for those who want to milk the system."

County Auditor-Controller Tyler McCauley has estimated in the past that employee fraud, waste and abuse annually costs the county about $250 million, although he's reluctant to make estimates now.

McCauley, who said he's seen a dramatic increase in the number of people willing to participate in illegal activities, concedes that the county doesn't require enough income and asset proof from welfare recipients.

Department of Public Social Services Director Bryce Yokomizo has disputed estimates by prosecutors and the grand jury on the extent of child care fraud, but recently wrote in a memo to the Board of Supervisors that fraud in portions of the program under state control is a serious problem.

DPSS has 178 fraud investigators and supervisors who helped prevent $59 million in welfare fraud last fiscal year, up from $45 million in 2000-01. More than 800 child care fraud investigations are currently under way.

Supervisor Don Knabe said the state estimates child care fraud exists in up to 7 percent of all statewide cases, but two-thirds of the program is administered by the state and DPSS can't investigate those cases.

The state has "no clear policies in place that meaningfully address program integrity or quality control, let alone a means of preventing criminal activity in child care programs," Knabe said. "The result is that a majority of child care funding - nearly $235 million given out locally ... last year - is left wide open to fraud."

Concerns about county employee fraud, waste and abuse also have escalated after investigators discovered that Martin Luther King-Drew Medical Center employees were engaged in widespread workers' compensation and time card abuses.

Investigators found more than 120 instances where employees filed injury claims for tumbling out of chairs and doctors who claimed to work for 24 hours a day for weeks at a time.

Since January 2004, more than 500 MLK employees have been disciplined for time card and other abuses, including 255 who resigned or were fired.

County investigators found the problems involved "systemic deficiencies" throughout county government, noting a growing number of employees are being fired and disciplined for time card abuses and hundreds of investigations are under way.

Following reports that thousands of employees earned overtime equal to half or more of their pay and hundreds doubled or tripled their salaries, the Board of Supervisors directed officials last year to revamp time card protocols.

Chief Administrative Officer David Janssen said those changes cannot be made until a new human resources computer system is installed.

"The fiscal system has been totally redone," Janssen said. "But it will be another year or two before we have a new time card system."

Still, the county's overtime costs have shot up from $296 million in 2003-04 to $423 million last fiscal year - $113 million over budget.

"(Time card abuses are) a more widespread problem," said Marion Romeis, chief of the Office of County Investigations. "A substantial number of our referrals involve time abuses. It goes across the county. Some of the big ones always involve the doctors."

Time card abuse investigations rose from 14 in 2000 to 49 last year.

Romeis attributed the increase in fraud investigations to heightened employee awareness of possible problems and the fraud hot line, which makes it easier for employees to anonymously report possible abuse.

But Romeis concedes she doesn't have enough investigators and only investigates the "very egregious" cases because it's time-consuming to conduct surveillance on employees.

The Board of Supervisors recently funded two extra investigators for Romeis office, bringing the total to 14. The investigators refer criminals cases to the District Attorney's Office and send other completed investigations to various departments for discipline.

The D.A.'s Office has 273 Bureau of Investigation investigators, some of whom handle county cases.

The District Attorney's Office Public Integrity Division filed felony charges against 75 county employees since 1999, including 28 welfare workers. A total of 23 were sent to jail, eight to state prison and 38 were placed on probation.

"It's much more than has ever been done in the 156-year history of the Los Angeles County D.A.'s Office," District Attorney Steve Cooley said. "Since I've been D.A., we've had a strong commitment to pursue public corruption."

Despite the large number of prosecutions, critics said only a small proportion of county employees found to have engaged in fraud and misconduct are disciplined or charged criminally.

While investigators substantiated 120 fraud hot line cases last year, only 38 employees, or 32 percent, were fired, suspended, transferred or allowed to resign.

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