Allegations of mismanagement, overspending in California fire cleanups raised in whistleblower trial

Exposing years-old concerns about California’s resilience to wildfires, a government whistleblower and other witnesses in a recent state trial alleged that cleanup operations after some of the largest fires in state history were plagued by mismanagement and overspending — and that toxic contamination was at times left behind in local communities.

Steven Larson, a former state debris operations manager in the California Governor’s Office of Emergency Services, failed to convince a jury that he was wrongly fired by the agency for flagging those and other issues to his supervisors. After a three-week trial in Sacramento, the jury found Larson was retaliated against, but also that the agency had other, legitimate reasons for dismissing him from his post, according to court records.

Still, the little-discussed trial provided a rare window into a billion-dollar public-private industry that is rapidly expanding — and becoming increasingly expensive for taxpayers and lucrative for contractors — given the increased threat of fires from climate change.

It raised serious questions about the state’s fire response and management capabilities at a time when the Trump administration says it is aggressively searching for “waste, fraud and abuse” in government spending, proposing cuts to the Federal Emergency Management Agency and clashing with state leaders over the best way to respond to future wildfires in California.

The allegations raised in the trial also come as FEMA and the Army Corps of Engineers are overseeing similar debris removal work — by some of the same contractors — following the wildfires that destroyed much of Pacific Palisades and parts of Altadena in January, and as fresh complaints arise around that work, as The Times recently reported.

During the trial, Larson and other witnesses with direct knowledge of state fire contracts raised allegations of poor oversight and sloppy hiring and purchasing practices by CalRecycle, the state agency that oversaw multiple major cleanup contracts for CalOES; overcharging and poor record-keeping by contractors; toxic contamination being left behind on properties meant to have been cleared; and insufficient responses to those problems from both CalOES and FEMA officials.

The claims were buttressed at trial by the introduction into evidence of a previously unpublished audit of cleanup operations for several large fires in 2018. They were mostly rejected by attorneys for the state, who acknowledged some problems — which they said are common in fast-paced emergency responses operations. They broadly denied Larson’s allegations as baseless, saying he was an inexperienced and disgruntled former employee who was fired for poor performance.

The allegations were also dismissed by CalOES and by Burlingame-based Environmental Chemical Corp., which was the state’s lead contractor on the 2018 fires and is now the Army Corps of Engineer’s lead contractor on cleanup work for the Palisades and Eaton fires, which is nearing completion.

Anita Gore, a spokeswoman for CalOES, defended the agency’s work in a statement to The Times. While acknowledging some problems in the past, she said the agency is “committed to protecting the health and safety of all Californians, including in the aftermath of disasters, and is unwavering in its desire to maintain a safe and inclusive workplace where everyone can feel respected and thrive.”

In its own statement to The Times, ECC said it followed the directives and oversight of state and federal agencies at all times, and “is proud of its work helping communities recover from devastating disasters.”

“We approach each project with professionalism, transparency, and a commitment to delivering results under extraordinarily challenging conditions,” the company said.

Maria Bourn, one of Larson’s attorneys, told The Times that while her client lost at trial — which they are appealing — his case marked a “win for government accountability and the public at-large” by revealing “massive irregularities by wildfire debris removal contractors” who continue to work in the state.

“The state’s continued partnership with these companies when such widespread irregularities were identified by one of its own should alarm every taxpayer,” Bourn said.

A Malibu home lies in ruins after the Woolsey fire. Many questions were raised about the response.

(Al Seib / Los Angeles Times)

Camp, Woolsey and Hill fires

The allegations centered in large part around the state-run cleanup efforts following the Camp fire in Northern California, which killed 85 people and all but erased the town of Paradise in November 2018, and the contemporaneous Woolsey and Hill fires in Southern California, which ripped through Malibu and other parts of Los Angeles and Ventura counties.

FEMA has reimbursed the state more than $1 billion for costs associated with those cleanup efforts.

In a July 28, 2019, email entered as evidence in the trial, Larson wrote to CalOES chief of internal audits Ralph Zavala that he wanted to talk to him about “potential fraud” by Camp fire contractors, including ECC.

“I cannot say for sure, but something sure smells fishy,” Larson wrote in the email. “Either their contract was not in fact the lowest bid or they are creating fraud in the way they collect debris.”

Larson wrote in the same email that ECC was “supposedly the lowest bidder” but was “costing more” than the lower bids, which he wrote “doesn’t make sense.” At trial, Larson and his attorneys repeatedly claimed that instead of properly investigating his claims, his supervisors turned against him.

Other current and former state officials testified that they had raised similar concerns.

Todd Thalhamer, a former Camp fire area commander and operations chief who still works for CalRecycle, testified during the trial that he’d told Larson he believed ECC had low-balled its bid to win the work, then overcharged the state by millions of dollars. He said he had “dug very deep into the tonnage cost that they were charging, how they were charging, how they were cleaning it up,” and believed that ECC had been able to “game the system” by reporting that it was hauling out more of the debris types for which it could charge the most.

ECC denied manipulating bids or overcharging the state, and said that “all debris types and volumes are 100% inspected by and determined by CalRecycle and its monitoring representatives and systems, not by ECC or its subcontractors.”

Thalhamer testified that he’d sent an “email blast” out to top CalOES and CalRecycle officials telling them of his findings. He said that led to internal discussions and some but not all issues being resolved.

Further concerns were raised in records obtained by Larson’s attorneys from the prominent accounting firm EY, formerly known as Ernst & Young, which the state paid nearly $4 million to audit the Camp, Woolsey and Hill fire cleanup work.

According to those records, which were cited at trial, EY found that CalRecycle was “unable to produce documentation that fully supports how the proposed costs were determined to be reasonable when evaluating contractor proposals,” and didn’t appear to have “appropriate controls or oversight over the contractor’s performance.”

EY flagged $457 million charged by the contractors through 89 separate “change orders” — or additional charges not contemplated in their initial bids. It said the state lacked an adequate approval process for determining whether to accept such orders, couldn’t substantiate them and risked FEMA rescinding its funding if it didn’t take “immediate corrective action.”

EY specifically flagged $181 million in change orders for the construction of two “base camps” near the burn areas, from which the contractors would operate. It said the state only had invoices for $91 million of that spending, and that even those invoices were not itemized. EY executive Jill Powell testified that the firm believed such large contract changes were likely to be flagged as questionable by FEMA.

ECC — one of two contractors EY noted as having made the base camp change orders — defended its work.

The company said change orders are a necessary part of any cleanup operation, where the final cost “depends on the final quantities of debris that the Government directs the Contractors to remove and how far the material has to be transported for recycling or disposal.”

Such quantities can change over the course of a contract, which leads to changes in cost, it said.

As for the base camps, ECC said the state had explicitly stated in its initial request for proposals that it would “develop the requirements” and negotiate their cost through change orders, because details about their likely location and size were still being worked out when the bids were being accepted.

“Bidders could not know at the time of bid, which area of Paradise they would be assigned, how many properties would be assigned to the bidder, and therefore the exact size of the workforce that the Government would want housed in a Base Camp,” ECC said.

ECC said it “submitted invoices with supporting documentation in the format requested” by CalRecycle for all expenditures, and was “not aware of any missing invoices.”

“We cannot speak to what EY was provided from the State’s files or how the State provided those materials for EY’s review,” the company said. “Any gap in what EY reviewed should not be interpreted as meaning ECC failed to submit documentation.”

ECC said state officials only ever complimented the company for its work on the 2018 fires. And it said it continues to work in Southern California “with the same professionalism and care we bring to every project.”

SPSG, the second contractor EY flagged as being involved in the base camp change orders, did not respond to a request for comment.

Attorney James F. Curran, who represented the state at trial, said in his closing arguments that the work was not “running perfect” but was coming in on schedule and under budget. He said state officials were not ignoring problems, just cataloging non-pressing issues in order to address them when the dust cleared, as is common in emergency operations.

Curran said many of Larson’s complaints were based on his unfamiliarity with such work and his refusal to trust more experienced colleagues. He said Larson was fired not for flagging concerns, but because of “misconduct, arrogance, communication style problems, and performance problems.”

Gore, the CalOES spokeswoman, said CalRecycle awarded the contracts “through an open, competitive procurement process with oversight from CalOES and FEMA,” and that CalOES worked to address problems with contractors before Larson ever voiced any concerns.

Gore said CalOES hired EY to identify any potential improvements in the contracting and reimbursement process, and changed its policy to pay contractors per parcel of land cleared rather than by volume of debris removed in part to address concerns about potential load manipulation.

She said the agency could not answer other, detailed questions from The Times about the debris removal process and concerns about mismanagement and alleged overcharging because the Larson case “remains pending and subject to appeal,” and because CalOES faces “other, active litigation” as well.

The EY audit also flagged issues with several other contractors, including Tetra Tech and Arcadis, according to draft records obtained from EY by Larson’s attorneys and submitted as evidence at trial.

The EY records said Tetra Tech filed time sheets for unapproved costs, without sufficient supporting information, with questionable or excessive hours, with digital alterations that increased hourly rates, and without proper supervisor approvals. It said it also charged for work without providing any supporting time sheets.

The EY records said the company also used inconsistent procedures for sampling soil and testing for asbestos, used billing rates that were inconsistent between its contract and its invoices, charged for “after hours” work without supporting documentation, filed questionable, per-hour lodging costs, appeared to have digitally edited change orders after they were signed and dated, and relied inappropriately on questionable digital signatures for approving change orders.

Tetra Tech did not respond to a request for comment.

The EY records said Arcadis filed change orders for costs that appeared to be part of the “normal course of business,” filed invoices for work that began before the company’s state contract was signed, and relied inappropriately on digital signatures.

Arcadis referred all questions to CalRecycle. CalRecycle provided a copy of its own “targeted” audit of Arcadis’ work, which found the company had complied with the requirements of its nearly $29-million contract with the state. CalRecycle otherwise referred The Times back to CalOES.

A recovery team searches for human remains after the Camp fire.

(Marcus Yam / Los Angeles Times)

North Bay fires

Concerns about cleanup work following major fires in Sonoma, Santa Rosa and other North Bay counties in 2017 — under both CalOES and the Army Corps of Engineers — also arose at the trial.

Sean Smith, a former 20-year veteran of CalOES and a prominent figure in California debris removal operations to this day, alleged in an email submitted at trial that ECC and other contractors hired to clear contaminated debris and soil from those fires over-excavated sites in order “to boost loads to get more tonnage and money.”

ECC denied Smith’s claims, saying it “does not perform excessive soil removal” and that it followed “the detailed debris removal operations plan requirements” of the Army Corps of Engineers, which had its own quality assurance representatives monitoring the work.

In a deposition, Smith also testified that, in the midst of spending more than $50 million to repair that over-excavation, state officials identified lingering contamination at “what would be considered hazardous waste levels.”

“They hadn’t finished the cleanup in all spots, and we found it, and we recorded it,” he said.

Smith testified that those findings were presented to high-ranking CalOES and FEMA officials during a meeting in San Francisco in October 2018. At that meeting, CalOES regional manager Eric Lamoureux laid out all the state’s contamination findings in detail, “but nobody wanted to hear it,” Smith said.

During his deposition, Smith alleged that the “exact words” of one FEMA attorney in attendance were, “We have to find out how to debunk the state’s testing” — which he said he found surprising, given the testing was based on federal environmental standards.

“I don’t know how you’d debunk such a thing,” Smith said.

FEMA officials did not respond to requests for comment. CalOES also did not answer questions about the alleged meeting.

ECC said that Smith, who managed and signed its contracts with CalOES, gave ECC “a very positive performance review” when it completed the Sonoma and Santa Rosa work — describing its work as “exceptional.”

Smith said he quit his post working on those fires after the San Francisco meeting, though he continued working for the agency in other roles for a couple more years. Smith more recently formed his own debris removal consulting firm — which has been involved in soil testing for the state after other recent fires.

CalOES did not respond to questions about Smith’s claims or separation from the agency.