Nov. 25, 2002 – Barely a month after one blistering federal audit of a local government agency became public knowledge, another has been released by the Department of Interior's Office of Inspector General.
The release is of the final draft report on an audit of the Property and Procurement Department which focuses on the awarding — and in some instances the non-awarding — of government contracts.
The earlier draft report, made public in October, was of the first-ever federal audit of the Public Finance Authority (See "Audit faults PFA for management, spending ills".)
The Property and Procurement audit was undertaken to determine whether the V.I. government awarded professional service contracts in accordance with procurement requirements of the V.I. Code, whether contractor performance was monitored, and whether contractors were paid in accordance with provisions of their contracts.
The government struck out on all three counts, according to the audit findings. The report states that during Fiscal Years 2000 and 2001, the government issued 388 professional services contracts totaling approximately $100 million with gross disregard for the contracting process. The auditors found the awarding and the administering of the contracts was not adequate to protect the government's interests. And as a result, the report states, government agencies "regularly violated the procurement process."
The case of the uncontracted contractor
The most glaring lapses cited in the report concern a vendor operating without a contract who was paid in excess of $1 million by the Public Works Department and 11 other government agencies between 1998 and 2002 ostensibly to provide computer services. The auditors found that the contractor did not even have a valid V.I. business license until June 2001.
Audit reports issued by the Office of Inspector General do not identify individuals cited by name.
Public Works Commissioner Wayne Callwood told the auditors that the vendor in question was paid a monthly fee of $4,950 to provide services including the purchase of computer hardware and software and maintenance of the computer network and telephone systems, with the total payment over the four years coming to $375,173.
Callwood said when he became commissioner in the spring of 2001, the vendor was already employed, and he was surprised to learn the vendor had no contract. He said Public Works had experienced "major problems" with the quality of the vendor's services, including:
– Double billing for work performed.
– "Sabotaging" the department's computer network.
– Locking employees out of the network.
– Supplying used, rather than new, computer equipment.
Telephone calls to Callwood on Monday for comment were not returned.
The audit report states that the vendor had no contract with any of the 12 agencies involved. Despite this, a review of vendor payment records disclosed that the vendor received payments from all agencies, totaling $1,019,791. Of that amount, $266,283 represented federal funds.
The hiring of this vendor for extensive consulting work valued at more than $1 million with no record of competitive bidding and without a formal contract violates the V.I. Code. It requires that contracts for goods or services valued at more than $5,000 be put out to bid competitively and that the vendor have a business license. The matter has been referred to the Inspector General's Office of Investigations.
Contracts lacked bidding, funding, monitoring
A review of 70 contracts from FY 2000 and FY 2001 totaling $24.3 million found that 59 should have been awarded through the competitive procurement process. However, only six of these 59 contracts went through that process. In most cases, supporting documents justifying the lack of competition were lacking.
As examples, the report cites a Public Works contract from October 1998 for $125,000 for garbage removal services and another for Education Department construction for $216,372. Neither contact had documentation of the bidding process, which should have been mandatory.
The report states that 338 professional service contracts were awarded over the two years 212 for FY 2000 totaling $43.6 million and 176 for FY 2002 totaling $57.1 million.
To process these contracts, Property and Procurement had only one staff member, stationed on St. Thomas.
Property and Procurement Commissioner Marc Biggs is on sick leave, according to his office, and his assistant commissioner Randolph Lattimore did not return calls on Monday.
The audit also found that P&P had allowed government agencies to enter into eight contracts totaling $4.6 million for which funds had not been set aside, and into another 16 contacts totaling$13.3 million for which the funds set aside were insufficient to cover the contracted amounts.
In one case, the V.I. Justice Department entered into a $4.3 million contract for the development of a child-support enforcement system with no documented funding evidence.
In all 24 cases of contracts without funding documentation, the report states, there was no indication of Property and Procurement having returned the contracts to the user agencies to obtain such information. Also, all 24 contracts were approved for legal sufficiency by the Justice Department despite the missing or insufficient documentation.
The auditors also found that for 28 of 31 government contracts totaling $4.6 million, payments were made to the contractors before the contracts were fully executed.
The audit also found that government retirees were allowed to receive both retirement annuities and contract payments in excess of the 75 days the law allows. In one case, the auditors found a retiree receiving both types of payments for a period of 182 days.
In addition, the government was found remiss in monitoring the performance and payment of contractors. The auditors found that five contractors had been overpaid by $130,000.
Tourism Web site overpayment acknowledged
One example cited: The Tourism Department entered into a $659,800 contract for design and development of an official tourism Web site which included an allowance of $22,300 for contract-related travel. The auditors found that Tourism officials did not have documentation to support the travel expenses billed.
"Based on our inquiry," the report notes, "the contractor provided travel receipts totaling $9,160 and agreed to refund Tourism the unused $13,140 balance of the travel allowance."
The cost incurred for the Web site, launched last year, has been criticized as excessive by some in the marketing and Web design industries. (See "Government tourism site can now be seen".)
Arnold van Beverhoudt Jr., regional audit manager for Interior's Office of Inspector General, has issued 10 recommendations to Gov. Charles W. Turnbull for reversing the weaknesses identified by the audit. Property and Procurement's Biggs is said to have concurred with all of them.
Van Beverhoudt recommended that the governor direct all executive branch agency heads to adhere to established procurement laws and regulations when contracting for professional services.
Other recommendations require that Property and Procurement:
– Revise the entire procurement process, with a specific, authorized department official to be accountable for final approval of all contracts.
– Discontinue the practice of allowing contractors to perform and be paid for services before their contracts have been fully executed.
– Enforce procurement laws and ensure that operating agencies adhere to them.
– Discontinue approving contracts when there are insufficient funds.
– Develop with the Government Employees Retirement System and the Finance Department of Finance a procedure for avoiding the situati
on of a retiree being paid both contract money and his or her annuity for more than 75 days.
– Implement procedures to ensure that, should federal surplus property be donated to the Virgin Islands, it is used in accordance with federal requirements. (This item refers to the donation to the territory of a desalination barge that has never been used by the V.I. government. See "Rules continues water barge probe".)
– Implement procedures to monitor performance of all contractors and ensure that they perform services satisfactorily.
– Implement procedures to ensure that payments to contractors are monitored.
– Recover overpayments of $130,000 that were made to contractors.
A first draft of the audit report was provided in July to the governor and to Property and Procurement for their response. Gov. Charles W. Turnbull has not yet issued his response. Rina Jacobs McBrowne, the governor's public information officer, said on Monday that she would check with his legal counsel on the governor's response.
In the cover letter accompanying the final audit report that was submitted to Turnbull dated Sept. 30, van Beverhoudt asked the governor for a response by Nov. 25 — that is, Monday.
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