By Luke Thomas
May 30, 2012
A former employee turned whistleblower leveled serious charges of fraud, embezzlement and corruption Thursday against San Francisco-based Recology, accusing the unregulated garbage collection monopoly of bilking the State of California and taxpayers out of millions of dollars.
The whisteblower allegations have been announced at a critical time for Recology which faces a day of reckoning on June 5 when voters will decide if Recology can continue its monopoly or be subject to competitive bidding in an effort to reduce garbage collection rates while addressing a lack of oversight and accountability.
At a press conference held at the law offices of Scott Law Firm, former Recology operations supervisor Brian McVeigh, whose job responsibilities included preventing fraud and theft of California Redemption Value (CRV) recyclable materials, alleged Recology employees regularly inflated CRV weights in a kickback scheme involving Recology “customers,” a scam McVeigh reported both to the Brisbane Police Department and Recology management.
McVeigh estimates as much as $1.3 million per year was fraudulently extracted from the State of California and raises doubts as to whether San Francisco’s celebrated landfill diversion rates – claimed to be the highest in the United States – are accurate and reliable.
Instead of welcoming a police investigation and praising McVeigh for exposing the scam, Recology fired him.
McVeigh said Recology refused to allow police to investigate the fraud because he suspects management was also involved in the kickback scam and wanted to avoid further exposure and scrutiny.
His attorneys filed two civil lawsuits in San Francisco Superior Court, one of which has been filed on behalf of the State of California with the acquiescence of California Deputy Attorney General Nicklas Akers, who filed a legal motion March 20 to unseal the lawsuit and allow it to proceed. The lawsuits seek McVeigh’s reinstatement and compensatory damages as well as injunctive relief, attorney’s fees and economic damages – a collection of remedies that could cost Recology tens of millions of dollars.
“The State of California has paid Recology millions of dollars that it shouldn’t have for CRV funds, and the City and County of San Francisco has allowed Recology to dip into the diversion incentive pool and has obtained diversion incentive bonuses in the order of millions of dollars that they didn’t qualify for,” said McVeigh attorney David Anton. “But, because of accounting and fraud, they were able to manipulate those figures so that they got those bonuses.”
Recology hired McVeigh in December 2000 when the company was known as Sunset Scavenger. After receiving positive performance evaluations, McVeigh was transferred from the Pier 96 sorting facility to supervise the California Redemption Value Buyback Center at Recology’s Tunnel Road facility. He characterized his termination in June 2008 an act of “retaliation.”
“I was terminated after I reported the theft of California redemption material and the fraud by the employees and the cover up by management,” McVeigh said. “I made complaints to the board of directors, to the controllers, and reported a $1.3 million fraud – just from my department – is what I estimated over on Tunnel Road.”
“I reported it, while I was employed, to the Brisbane Police Department seeking their cooperation in investigating and pursuing the people who were engaging in the fraud – and when I tried to do so, all investigations were stopped,” McVeigh added. “I was told to back off. I was told to leave it alone. I was told I was messing with something that was going on for years.”
In his sworn declaration filed with the civil complaints, McVeigh reveals what he reported to Sergeant Lynn of the Brisbane Police Department: “I explained the conduct of a number of management individuals and my growing suspicion that management did not want me to be able to pin down the fraud and embezzlement involving State CRV refund payments, was potentially involved in covering up the fraud, and that there was a possibility that management, or some of management, may actually be involved in the fraud.”
Also in attendance at the press conference included former State senator and retired Superior Court Judge, Quentin Kopp, and community organizer Tony Kelly, both sponsors and proponents of Measure A, a 12,000 signature-approved initiative on the June ballot that aims to reduce garbage collection rates via competitive bidding of garbage collection contracts. To address corruption and accountability, Measure A would also place management and oversight of Recology’s recycling processing facilities – where the CRV fraud is alleged to have occurred – under city control.
Under Recology’s current monopoly, garbage collection rates have increased 136 percent since 2001 and are expected to increase again, effective July 1, 2013, Kopp said.
“City government and Recology, the monopoly, have concealed the fact that another massive rate increase is on its way,” Kopp said, adding that a rate increase application will be filed by Recology after the June 5 election. “The record shows that it will probably be a double-digit increase.”
The City and County of San Francisco is the only one of 71 Bay Area cities that does not require competitive bidding for garbage collection, or a franchise fee, despite two city-sponsored studies in 2011 that recommends open, competitive bidding. The City of Oakland, for example, charges a $24 million franchise fee on its $80 million competitively bid garbage contract.
Recology generates $220 million in annual revenues from residential and commercial San Francisco ratepayers. If Measure A passes, it is estimated San Francisco garbage collection rates would decrease by as much as 25 percent and generate an annual franchise fee worth $40 to 50 million, monies that will benefit the city’s general fund, Kelly said.
“This is just about making the garbage industry a franchise like every other franchise in the city and approving contracts the way the Board of Supervisors approves every single competitive bid contract,” Kelly said, adding, “There is no competitive bidding measure that Recology will ever support, because that’s their gravy train.”
Recology raised $1.5 million to defeat Measure A, according to records filed with the Department of Ethics, the beneficiaries of which include media, union, and political organizations including the San Francisco Democratic County Central Committee.
By comparison, Measure A’s proponents raised $56,000. It is endorsed by San Francisco Tomorrow and the Coalition for San Francisco Neighborhoods, a conglomeration of community groups representing 48 city neighborhoods.
In addition to Recology’s soft money political donations, Recology also routinely instructs its employees to work on election campaigns favorable to Recology interests, McVeigh said. Before he was terminated, McVeigh said he was instructed by Recology to work on the campaigns to re-elect former Mayor Gavin Newsom and former Supervisor Bevan Dufty.
“That definitely was part of the job description,” McVeigh said.
In another example of Recology’s meddling in the political election process, in last year’s race for mayor, Mayor Ed Lee booster Rose Pak sought Recology’s help to collect signatures and distribute campaign signs for the controversial “Run, Ed, Run” campaign.
Lee’s history with Recology has been favorable to the monopoly, Kopp said. As Director of Public Works under the administration of former Mayor Willie Brown, Lee overruled a staff-recommended rate increase of 22 percent in 1999 and instead awarded the company a 44 percent increase. The rate was appealed and reduced to 40 percent.
Responding to the allegations of CRV fraud and embezzlement of public funds, Recology-authorized spokesperson, Adam Alberti of Singer Associates, told Fog City, “The simple fact of the matter is, as far as the campaign is concerned, that this is a disgruntled employee who sued the company and has now joined with the only two other people in San Francisco who are in support of Proposition A. We believe that the policy here is a disaster, and if enacted would have a disastrous impact to rates and the city. And as far as the merits of the action, we believe that they don’t exist and we are confident that in due time that will be proven out in the courts.”
Asked if Recology intends to raise its garbage collection rates, Alberti said, “They have no plans to proceed with a rate increase at any time in the near future, but at some point in the future they will.”
Alberti was unable to comment on McVeigh’s termination except to acknowledge McVeigh had filed a wrongful termination action against Recology.
“I do not know the exact reasons behind why he [McVeigh] was fired,” Alberti said. “That’s an HR matter within the company.”
Court records show McVeigh’s causes of action against Recology were dismissed because as a supervisor with the responsibility to prevent and investigate fraud, McVeigh was not entitled to the protections of whistleblower status and was an ‘at will’ employee who was fired three years after McVeigh first reported the CRV theft and fraud. That decision is being challenged on appeal, Anton said.
Neither Recology nor Singer Associates responded to repeated requests for comment as to why Recology refused to agree to an investigation into the allegations of CRV fraud and theft. Nor did they respond to questions about Recology’s human resources policy as it relates to its employees working on political campaigns.