Last week, Los Angeles City Controller Laura Chick found $4.2 million in "unsubstantiated, unsupported, and questionable charges" on communications work Fleishman did for the Los Angeles Department of Water and Power. The alleged amount surprised many people, including the agency itself, which has provided 370 pages of information to the controller. Rather than settling up by paying back the money, Fleishman, part of the Omnicom Group, said that it will fight the matter in court if need be.
More than just wreak havoc with the firm's reputation, a protracted legal battle could train a microscope on the world of PR. For months, the local media has made Fleishman a whipping boy and last week a Los Angeles Daily News story reported that Fleishman was paid to "spin public opinion" before the release of an audit on another of the water and power department's subcontractors. "It's definitely a black eye for a very respected firm and for the industry," said one industry executive. "But Fleishman has taken the appropriate steps and has been aggressive in coping with the situation."
Fleishman executives have said repeatedly that it would pay the city for any overbillings and vehemently denied the controller's findings, issuing a statement reading, in part: "The report presents preliminary questions and erroneous assertions to arrive at an inflated overall estimate of questioned costs."
The contracts came under official scrutiny in April when Ms. Chick's office began to question discrepancies on invoices, including instances when the city was billed up to $100 an hour for leaving phone messages. The audit was later widened to include contracts with the city's airport and harbor departments totaling $700,000 a year.
The city filed a civil lawsuit against Fleishman-Hillard in July and later expanded it to include Doug Dowie, the general manager of the agency's Los Angeles office, who has been on paid leave since July.
The dollar figure said to be overbilled is roughly one-sixth of the amount of money the department of water and power has paid the agency since 1998.
In its statement, Fleishman offered to have the dispute mediated by an official agreed to by both the city and the agency, while at the same time expressing a willingness to fight in court. Ms. Chick turned down the offer. "The time for game-playing is over," she said through a spokesman. "If Fleishman-Hillard wants to regain its stellar reputation, it's time for them to give the money back."