DeKalb County (GA) Grand Jury Report on Procurement-Related Misconduct

Anonymous

Wed, 10/23/2013 - 10:30

Campaign Finance

It all started with the indictment, on charges of bribery and theft,
of a Fats, Oil & Grease inspector back in November 2010. It led
to <a href="http://www.ajc.com/documents/2013/aug/21/document-dekalb-special-grand-…; target="”_blank”">an 83-page grand jury report in August 2013</a>, which set out the misconduct involving the DeKalb County (GA) Department of
Watershed Management (DWM) procurement process, and made
recommendations not only for indictments, but also for an improved
ethics program. The story that the grand jury tells in its report is
a classic case of institutional corruption in a procurement context,
relating to a division of the Public Works department and a large construction project.
Just about every procurement-related ethics violation occurred, and
many people were involved or knew what was going on.

The act that led from the indictment to the grand jury report was
the courageous decision of then DWM Deputy Director Jo Ann
Macrina to tell the district attorney that the corruption in the
DWM went far beyond this one employee. According to the grand jury
report, the county police department had, in August 2009, begun an
investigation into allegations regarding invoice padding, contract
fraud, and bid rigging in the DWM. The investigation, she said, was
now being hindered by the police department. 
 
The investigation itself was limited. It focused on contracts
between the DWM and a tree service company. The company was believed
to have been overbilling the DWM, with the assistance of DWM
employees, including a deputy director's brother-in-law, who was employed by multiple DWM contractors. 
 
This might sound like small potatoes, but the first contract was for
the sum of $8.8 million. In fact, the entire project, known as the
Capital Improvement Program, was to cost $1.35 billion. DeKalb
County has a population of about 700,000, and includes Decatur as
well as about 10% of the city of Atlanta. 
 
Nepotism, Kickbacks, Overbilling, and a Cover-Up 
The tree service company was a small company located outside the
state. It was far too small to have considered bidding on the contract on its own. But its
owner had met a local businessman through a common friend, and had
made a deal to give the businessmn 11% of the company's earnings as a "finder's
fee," which he was to share with the brother-in-law who worked for
DWM contractors. Such contingency fee contracts are prohibited by
law in DeKalb County. 
 
Things get complicated here, but involved individuals with personal
and family relationships to a powerful deputy director and his
appointee, all of whom became involved in the overbilling scheme.
That is, this first piece of the puzzle that came out involved
itself covered a wide range of government ethics violations: misuse
of office, nepotism, contingency fee contracts, kickbacks, and
cronyism. 
 
It's worth noting that, from the beginning, there were
questions about the competence of the contractor's work. Not only
was there an overexpenditure of government money, but the work done
was below expectations, increasing the cost to the community. This
is often the case when there are kickback schemes featuring nepotism
and cronyism. 
 
It's also worth noting that, when an investigation threatened county
officials, there was a cover-up, implicating the police department
in addition to the DWM and high-level county officials. 
 
In addition, it turns out that an inspector not only knew about the company's
overbilling, but reported it to the two deputy directors involved in
the scheme. When told to sign off on the invoices, however, he did so. Had he
had a hotline to which to report the overbilling, it's possible that
he would have filed a report. If he had been required by law to report the
overbilling, it is also more likely that he would have. 
 
Subcontractors 
Many ethics codes and procurement rules are limited to contractors,
those who are directly responsible to the government. But
subcontractors often do all or nearly all of the work. That was the
case when the tree service company was told it needed a "black face"
to keep the contract. An African-American friend of the company's
owner signed the papers, with the plan that the same tree service
company would do all the work as a subcontractor. 
 
The other problem here was a lack of verification. The front man had
no experience in tree service. His bid would have been rejected if
there had been the slightest investigation. 
 
Contract Splitting 
Most jurisdictions have an amount below which a contract does not
have to be bid. Sometimes, officials collude with contractors to get around competitive bidding via contract splitting, the creation
of purchase orders just under the limit (in DeKalb County $50,000)
that can add up to no-bid contracts in the millions of dollars.
That's what happened in DeKalb County, with 14 different
contractors. One of them received $2.6 million over three years,
without having to make a bid. It was listed as having only a $50,000
contract. 
 
Outside Approval 
Not only did this contract splitting allow contracts to get around
the competitive bidding process, but it also ensured that the
contracts would not have to be approved by anyone outside the
department. In this instance, the contracts would have to be
approved by the board of county commissioners. It is better that an independent, centralized office,
such as an auditor, inspector general, or ombuds, reviews and
approves all contracts, whether bid or not. 
 
Pay-to-Play Hiring and Contingency Fees 
Multiple contractors and subcontractors hired a DWM deputy
director's twin brother as a consultant, although he had no
experience in the field, and they won contracts. After one
contractor fired the twin brother, its bids were rejected and work
under its current contracts was reduced or ended. 
 
Contingency fee language for the brother's consulting contracts was
developed by his sister, then a judge, and a county attorney serving
then as the Assistant Director of Purchasing and Contracting. The
county's manual entitled "Ethics in Public Purchasing for DeKalb
County," making such contingency fees illegal, had been originally
submitted to this very county attorney. 
 
Failure to Withdraw from Participation 
A DWM deputy director who sat on bid selection committees did not
withdraw from participation regarding a $20 million contract her
brother-in-law was involved in bidding on. He won the contract, and appears to
have been a central figure in, and major beneficiary of, the various
schemes outlined in the grand jury report. 
 
According to the report, "one subcontractor ... testified that [the
brother-in-law] told [a bidder he worked for] that they had nothing to worry
about because [the sister-in-law] would be on the selection
committee for the contract award." But subcontractors are rarely
brought into a government ethics program, do not feel bound to
report such misconduct, and know that nothing will happen to them if
they do not. 
 
Local Participation Requirements 
This huge project has a 20% Local and Small Business Enterprise
(LSBE) participation requirement. What this means is that every
large contractor that wants to make a bid has to work with a limited
number of local small businesses in the field. This gives these
small businesses a great deal of power, which can be misused. And it
also encourages the creation of local small businesses that will fit
the bill, even if they lack the expertise. 
 
The grand jury, in recommending the elimination or substantial
revision of the program, notes that "one common abuse has featured
non-LSBE firms who partner with, and sometimes create, sham firms
who meet LSBE eligibility criteria on paper but who perform no
actual work - or, in the words of LSBE regulations, perform no
'commercially useful function' - on the government-funded project." 
 
For any government wondering how to better control such a program,
this report contains some good recommendations. 
 
The County CEO 
The county CEO has a
great deal of power with respect to DWM operations and especially
this big project. The grand jury says that the CEO was involved in
the schemes in several ways, and provides details for each: 
 
1. The solicitation of campaign contributions from contractors. 
 
2. The cancellation or attempt to cancel contracts in order to
create an "emergency situation." This allows the CEO to enter into a
no-bid contract with another contractor. 
 
3. The cancellation of contracts and the non-issuance of work to
contractors for punitive and political reasons. 
4. The selection of bid selection committee members, despite the fact that major
campaign contributors are likely to or have already submitted bids. 
5. Ex parte communications with committee members and bidders during
the active evaluation period. 
6. Interference with and/or alteration of a selection committee's
final recommendation, prior to its submission to the Board of
Commissioners, in favor of vendors represented by a particular
lobbyist or vendors with a history of making and raising large
campaign contributions. 
 
Grand Jury Recommendations 
The grand jury recommended the indictment of at least twelve
individuals. The charges include bid rigging, kickbacks,
manipulation of the selection committee process, theft, and perjury. 
 
It also recommended a reorganization of the county government. It
points to the "over-reliance on County staff and departments who
ultimately report to an elected official," arguing that it "provides
too many opportunities for 
fraudulent influences and fosters a culture that is overly
politicized and in which inappropriate business relationships are
created. Inept policies and procedures and an attitude of
non-compliance with same has been a strong thread throughout our
investigation." 
 
In effect, it recommends a change from mayor-council to
council-manager form of government, a change that is, sadly, not the
current trend. What people tend to see as the accountability of a
single leader often gives that leader too much power. 
 
As part of the change in form of government, the grand jury recommended that the county commissioners be full time, so that they can be
better focused on and informed about what goes on in the county
government, and also because this "would help to eliminate
potential conflicts between their private life and public
responsibility." 
 
The grand jury recommended "a comprehensive and enforceable code of
ethics." It wrote, "Ethics is of such importance that our
recommendation is for DeKalb County to create a full time Ethics
Officer position, supported with proper departmental resources, that
reports to the Board of Commissioners. The sole purpose of this
position and department will be to establish and enforce new ethical
guidelines for employees, vendors and elected officials." It
recommended using Atlanta's ethics program as a model, but failed to recognize that Atlanta's ethics officer reports to the ethics board, not to the city council. 
 
The grand jury was especially concerned that the members of the ethics board
were political appointees (Atlanta's are selected by community
organizations, as City Ethics recommends). It also notes that the
Board of Ethics website has not been updated since 2010 and lists
its last meeting as having taken place in November of 2010. 
 
The grand jury should also have recommended a hotline, so that
employees could anonymously report misconduct, as well as ethics
training and independent ethics advice. They treated this too much
as a procurement matter, when it was actually an ethics matter in a
procurement context. 
 
It should also have recommended ethics program jurisdiction over
contractors, subcontractors, lobbyists, and consultants, so that
most of the kind of people involved and knowledgeable about ethical
misconduct would be required to take ethics training, and would be
expected to seek ethics advice and report ethical misconduct they
knew of. 
 
The grand jury also recommended the following: 
 
1. That the Office of Public Safety Director be eliminated, because
"is not necessary and only hinders the ability of the Police Chief
to properly manage the Police Department in all aspects." It notes
that "as a political appointee of the CEO, the position and its
functions runs the risk of becoming a repository of 'internal
investigations' where cases can be hidden and never see the light of
public scrutiny." 
 
2. That the internal auditor be as independent as possible, report
to the board of county commissioners, and have no operational role
in the government. 
 
3. That county commissioners and procurement personnel be trained to
better recognize bid rigging and other illegal procurement
practices. 
 
4. Internal controls to properly account for and safeguard
government assets. It said something that seems especially
wise: "Understanding the vulnerability of physical assets,
consequently, will provide a clearer picture of the vulnerability of
other assets." 
 
Conclusion 
There is a lot in this grand jury report that is worth learning and
thinking about. It presents a distressing picture of a government,
a large Public Works division, and a huge project that were beset by
institutional corruption. Not only were nearly all the essential
ethics rules violated and dozens of individuals involved (and many
others had knowledge), but very few individuals who knew what was
happening reported what they knew. When they did, the investigations
were scrapped. If not for one deputy director who went to someone
outside the authority of the DWM and county CEO, these schemes would
most likely still be going on. 
 
An October 1 report on the grand jury recommendations from the
county's chief operating officer made no mention of a full-time
ethics officer, according to <a href="http://www.thecrier.net/news/article_b0282bb2-352a-11e3-992a-001a4bcf88…; target="”_blank”">an
article last week in The Crier</a>. 
 
Robert Wechsler 
Director of Research-Retired, City Ethics 
 
---

Search

DeKalb County (GA) Grand Jury Report on Procurement-Related Misconduct

Tags

Share This Page