OC waived key oversight of contracts during COVID, opening the way for fraud, audit finds

An Orange County audit of pandemic-era contracts found the county waived key oversight on how tens of millions in public money was spent. The findings, issued late Wednesday, came after county supervisors ordered an inquiry in September spurred by LAist’s reporting on millions of taxpayer funds that officials said they could not account for.

Auditors have referred two contracts to the O.C. district attorney and county counsel for further investigation:

• A $25,000 contract former Supervisor Andrew Do gave DTN Tech, a printing company that also provided meals during the pandemic under a different contract issued by then-county supervisor Michelle Steel.
• A $2 million contract with a company that made payments to a restaurant at the center of a wider corruption scandal.

Editor's note (Feb. 11): LAist initially incorrectly reported, based on language in the auditor's report, that a $1.2 million contract Steel entered into with DTN to provide meals during the pandemic had been referred to county counsel and the D.A. for further review. After Steel's representatives alerted LAist that was incorrect, auditors clarified that the Steel-approved contract was mentioned for context about why they had questions about whether DTN Tech qualified for the $25,000 contract.

Among other findings of the internal audit:

• Only four out of 15 beneficiary agreements funded by American Rescue Plan Act (ARPA) dollars — which went to cities and nonprofits to address pandemic costs —  included oversight to check if taxpayer dollars were used as intended.
• Around $850,000 of ARPA dollars were used by the county to fund gift cards during the pandemic. Auditors recommended that departments should implement a system matching signatures with recipients to ensure that those who needed them got them.

Auditors said more broadly that county leaders, including the chief executive’s office, should take steps to strengthen the current guidelines for monitoring contracts, including having a process to evaluate risks. In response, the CEO’s office said numerous changes have been made to address shortfalls, including processes to check if contractors or vendors are in good standing. The CEO’s office also said that the county has implemented measures requiring that contractors report and document that dollars are spent according to the contract.

What the auditors reviewed

The review covered contracts, beneficiary agreements and gift card expenditures that auditors deemed to be high risk. Those contracts comprised more than $200 million — or 78% of the county’s federal COVID dollars. In those instances, auditors determined the county complied with federal accounting and monitoring rules — keeping in mind that during the pandemic many rules were waived, including procurement rules.

The audit, however, did not include four payments to Viet-America Society and Hand to Hand Relief Organization totaling $8.2 million. Both of those nonprofits are at the center of an unfolding corruption probe that forced longtime O.C. Supervisor Andrew Do to resign in disgrace in October and plead guilty to a federal bribery charge.

Do faces up to five years in prison at his sentencing, which is scheduled for March.

That charge came after LAist’s reporting on Do directing $13 million in contracts to Viet-America Society, a nonprofit where his daughter Rhiannon Do was a leader. Federal officials say little of that money ended up going to serve the public, and was instead used to buy personal homes and pay off property taxes and credit card bills.

Orange County also filed a pair of lawsuits in August against Viet-America Society and Hand to Hand Relief Organization alleging Rhiannon Do and other defendants “brazenly plundered” public funds.

The audit issued this week underscores the role some key pandemic-era decisions by lawmakers played in the lack of oversight. During that time, O.C. supervisors voted to establish some contracts without a formal bidding process — which was outside normal business. Then, when the emergency measures ended in 2021, Andrew Do made a verbal motion that contracts already established without the bid process should be allowed to continue. Auditors say this is what allowed the county to continue contracting with Viet-America Society.

And it’s also how all five sitting supervisors were able to award meals contracts without a review of those bids by the full board — a process auditors said should be “adequately justified” going forward.

About the contracts referred for investigation

The county auditors also found that Andrew Do gave DTN Tech $25,000 in taxpayer dollars but did not document why the company was eligible for the public funding.

Auditors said it appeared DTN Tech did not meet an eligibility requirement for ARPA funding as they had received a $1.2 million contract from Michelle Steel, who was on the board of supervisors before serving in Congress. ARPA funded contracts required a 25% decline in revenue.

Steel, who at the time represented the county’s 2nd District, hired DTN Tech, to provide meals. DTN Tech had previously printed Steel’s campaign mailing materials and did not have a track record of managing meals programs. An LAist investigation into the supervisors’ meals contracts found that Steel agreed to pay about $24 per meal to DTN Tech to provide dinners to needy seniors within her district. LAist’s review of other contracts found, with the exception of Do, other supervisors’ costs ranged from $7.50 per meal to $11 per meal. Also, under Steel’s program, meals were available only for pickup, while other districts required home delivery.

DTN Tech did not respond to a request for comment.

County auditors also referred to the district attorney and county counsel a $2 million contract with Abound Food Care for food, water and storage equipment that can be used during a disaster or emergency.

Abound used at least $277,120 of that money to pay Perfume River, a restaurant in the Asian Garden Mall in Westminster, according to billing documents LAist obtained through a public records request. The restaurant, owned by Aloha Financial Investment, was searched by federal agents the same day agents also searched homes owned by Andrew Do and Rhiannon Do. It has since closed. The leaders of Aloha were named in the county’s lawsuit against VAS for conspiring to divert funds the county awarded to VAS.

Mike Learakos, CEO of Abound Food Care, told LAist he made sure the restaurant staff were properly trained for the work Abound was funding, and that Perfume River followed through on its obligations for that contract.

Learakos also told LAist that he has fully cooperated with the FBI in their investigation into Andrew Do.

He added that Abound required Perfume River and other vendors they contracted with to provide information on where the meals went — something the county did not require — in case there was a foodborne illness.

 "Not only did we identify the food that went to Perfume River, the work that they did, but we identified where that food went, and that was the last piece of the puzzle that the FBI wanted that the county did not require was we were able to identify what nonprofit agency received that food," he said.