San Diego city officials kept doing business with a janitorial company even after a 2016 audit found the contractor overbilled the city almost $33,000 and violated the city’s living wage law and California’s labor code.

Why this matters

Colleges — including private, nonprofit schools like San Diego Christian — benefit from state and federal financial aid and have an obligation to be transparent with the public about their finances.

After San Diego’s 2016 audit found violations by Prizm, the company refunded the $32,915 it had overbilled the city for services that were never provided. It also paid its workers $7,973 in back wages and leave time owed under the living wage law.

A 2014 audit also showed the company, Prizm Janitorial Services of Escondido, violated the living wage law by making all of its workers independent contractors, not employees. At the time, the city referred its findings about Prizm to the fraud division of the District Attorney’s Office, but no case was filed.

Other findings in the audit included:

  • Prizm paid some employees in cash with handmade receipts. It didn’t provide itemized pay stubs as required by state labor code.
  • The company claimed it didn’t know or employ multiple workers whose names were on signup sheets that were for Prizm employees to use while doing work the company had been contracted to do.
  • During the audit, Prizm failed to provide requested records in violation of a city code and interfered with the investigation despite being repeatedly told not to.

Prizm is registered to Johnson Le, who is listed as the company’s chief executive officer and chief financial officer. The company’s address is a mailbox at an Escondido PostalAnnex.

To try to obtain a response from Prizm, inewsource called the phone number the company has listed on several government contracts. A man answered but after being told the reason for the call he said he didn’t know Le or anything about Prizm. Two messages to the company’s email address were not answered.

inewsource made multiple requests to have city officials explain why San Diego continued to do business with Prizm following the two critical audits, but those requests were denied.

A spokesman for the Purchasing and Contracting Department said in an email that companies found to be out of compliance are given a chance “to take corrective actions.” If they don’t, they can be suspended, terminated or disbarred. “In this particular case, the department worked with the company and was able to resolve issues related to back wages and compensated leave,” spokesman Timothy Graham wrote.

San Diego’s living wage ordinance took effect in July 2006. The City Council approved the law as a way to increase wages and improve health and leave benefits for employees of city contractors. The living wage is adjusted annually based on inflation. Including benefits, San Diego’s living wage is currently $14.95 an hour.

It is up to the city to enforce the law, which it does with random audits of its contractors. A complaint about a contractor also triggers an audit. That’s what happened with Prizm in 2016.

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Subcontractors and cash payments

Prizm’s payroll records, some of which were handwritten receipts for cash payments, were flagged in the 2016 audit. They showed that over a 29-month period, San Diego had paid Prizm about $600,000 for janitorial services, yet the company had only paid its workers about $200,000.

“The amount of payroll does not appear to be sufficient to support the labor hours needed to perform the actual janitorial work on these contracts with the City,” the audit said. “This points to a potential overbilling to the City, underpayment to the workers, or a combination of both.”

The audit found Prizm underpaid workers by classifying some employees as independent contractors, violating the living wage law. These independent contractors also didn’t file paperwork required under the law.

In addition, Prizm  violated California’s labor code by failing to pay sick leave or give employees detailed pay stubs, according to the audit.

“In general, whenever we identify a violation of this requirement, we will forward that to the state labor commissioner for a review, an investigation,” said Cheryl Smoot, an official with the city’s Equal Opportunity Contracting program, which oversees living wage enforcement.

A spokesman for the California Department of Industrial Relations, which includes the Labor Commissioner’s Office, said the office has no records related to Prizm or Le.

Prizm’s other government contracts

Since 2010, Prizm has been paid almost $3.4 million by government agencies and municipalities, according to GovSpend, a website that tracks government contracts.

That includes Santee, where Prizm holds two contracts worth about $57,300 to clean city offices and park restrooms, city officials said.

Santee has had no issues with Prizm, said Bill Maerz, director of community services. Told by inewsource about the San Diego audits, he said that raises questions for him.

“Whenever I see news like that, it concerns me and we definitely would take a closer look,” Maerz said.

In May, Carlsbad signed Prizm to a contract worth up to $2.7 million over six years to clean 19 city facilities and 17 park restrooms. A city spokeswoman declined to comment on San Diego’s audit findings.

San Diego County has three contracts with Prizm, a county official said. Two of the contracts are worth almost $42,600. Under the third contract, the county paid Prizm about $28,800 for janitorial services in June, according to public records.

The Metropolitan Transit System has worked with Prizm since 2009, spokesman Mark Olson said. The company has two contracts worth about $12,200 to clean the Fashion Valley station restrooms and some appliances at an MTS building.

In an email, Olson said he is unaware of any complaints about Prizm. If the company’s  employees have complaints, those would be handled by San Diego or the state Labor Commissioner’s Office, he said.

San Diego does not share its living wage audits with other local governments because it is the only city in the county with such a law, said Claudia Abarca, an official with the city’s Equal Opportunity Contracting program. Sharing findings about being overbilled, however, might be a good idea, she said.

“That may be something we need … with all the other agencies” in the county, Abarca said.

Leonardo Castañeda was a reporter and economic analyst for inewsource. To contact him with tips, suggestions or corrections, please email leocastaneda [at] inewsource [dot] org.