Monday, May 19, 2003

Weak contracts waste tax money

Audits find $100 million misspent

By Debra Jasper
and Spencer Hunt
Enquirer Columbus Bureau

Last spring, state officials set aside $6,000 in tax money to host a wine-tasting party for the public at a plush Cleveland resort. Just a dozen people showed up.

"Even if we'd sent a case of wine to all 12 people it would have cost less than $6,000," acknowledges Michelle "Mike" Widner, who heads the Ohio Grape Industries Committee, which promotes Ohio wine.

The committee arranged the wine tasting through a contract with a private marketing firm. At least that event was held. The same month, state auditors cited the committee for spending $380,000 on contracts so poorly written and overseen that officials paid for 98 wine and cheese tasting events that never took place.

"The contracts sucked," says Widner, who took charge of the agency after the auditors' review. "They were dreadful."

Part One of this special Enquirer report, published Sunday, disclosed that government contractors and public agencies misspent more than $346.5 million in tax dollars since 2000. Worse, government officials rarely chase after lost money.
Sunday's main story
Lawsuits, new laws might help crackdown
Wasted money? It all depends
Who's accountable?
Lax controls and casually administered contracts are common when public agencies do business with private firms, a Cincinnati Enquirer investigation shows. Since 2000, at least 116 state audits and inspections have found that private government contractors misspent $97.7 million in tax money.

And those are just the firms unlucky enough to get audited. State Auditor Betty Montgomery says she's unsure if she has the legal authority to even look at some private firms' books. Companies have argued that public dollars become private once they've been paid.

"They may have to invite me in," says Montgomery, who became auditor in January. "I'm still trying to get my arms around it."

Private companies also can avoid examination if they or the agencies that hire them refuse to pay for state audits, Montgomery says. Auditors don't come cheap. An estimated 15,000 audits performed by the State Auditor's Office over the past three years cost $228 million.

"At the end of the day, we have to look at whether we have the budget to hold people accountable," Montgomery says. "It pains me to say this because I've never had to say it in my professional life, but even if we know there is something wrong, we might not be able to afford to right it."

The confusion over whether the state can examine the way private firms spend tax money comes at a critical time: State spending on outside consultants and contractors has exploded in Ohio - jumping from $206 million in 1991 to $609 million in 2001. Companies also are paid more than $1 billion a year to care for foster children, the mentally retarded and other vulnerable populations. And the state is facing a $4 billion budget shortfall - Ohio's worst since World War II.

Ohio Attorney General Jim Petro says the increased spending and sloppy oversight make it crucial that government agencies write stronger, more-detailed contracts with private companies and consultants.

Too often, he says, contracts don't spell out how tax money is supposed to be spent and what services are supposed to be delivered. Some contracts don't require audits. Others don't even stipulate that the government can fire companies that do a bad job.

"We've seen contract after contract that didn't ask, 'What am I getting for my millions?' " Petro says.

"There is just too much overspending. It's outrageous that we see companies that make their money from government contracts spending money for luxuries."

'It's a mess'

Petro, who was state auditor before Montgomery, believes the office has every right to audit private firms. In audits of 26 foster-care firms over the past three years, he found contracts that didn't demand that tax dollars be used only to meet the needs of children. He determined that the firms misspent nearly $16 million.

"I'm still amazed by the contracts used in that arena," Petro says. "We had instances where we found six children living in an old house in Dayton, being cared for by a 22-year-old girl who had been convicted of drug offenses. We can do better than that. The state has to set standards."

Penny Wyman, executive director of the Ohio Association of Child Caring Agencies, which represents 67 private foster-care companies, acknowledges that a "lot of government contracts are terrible."

She, too, blames shoddy oversight. "There is no standard accounting. It's a mess," she says. "It's like Monty Python put it together."

Wyman says some county agencies are so mismanaged they lose track of the number of children they've placed with private companies.

"We have public agencies that call our (foster care companies) and say, 'How many of our kids do you have?' " Wyman says. "And we say, 'You're paying the bill. Don't you know?' "

Wyman says the state should force foster care companies to turn in their own internal audits as required by law.

A department examination of 16 firms in March found that two didn't submit proof they did an audit and eight submitted audits that didn't meet standards. "Obviously, just setting a rule in place doesn't make it so," acknowledges Barbara Riley, a deputy director.

She says the department plans to start withholding tax money from companies that don't comply. But Wyman notes that even when companies adhere to the rules, problems persist.

She says most state licensing specialists don't have accounting backgrounds and don't know how to review audits that are turned in. Instead, Wyman says, "They just ask if the audit has been done and check off the box."

Wyman says the state needs to ensure that audits turned in by foster-care companies are reviewed by accountants who can spot potential problems. In addition, she says, the state should crack down on boards of trustees when private companies don't turn in audits, misspend money or fail to deliver services promised in a contract.

"Right now, what incentive does a board have to provide strict oversight of its director? How are they held accountable?" she asks. "The truth is, they aren't."

No guarantees

The Job and Family Services Department also is struggling to properly monitor contracts with companies that provide health care and services to the poor, the elderly, the mentally ill and other needy Ohioans.

An Ohio Inspector General report in November 2000, for example, questioned $60 million in contracts the department awarded to Andersen Consulting to help create welfare-to-work programs.

Inspectors said department director Arnold Tompkins awarded unbid contracts to Andersen, then retired and went to work for the company. After he left, the new director, who was Tompkins' former business partner, gave the firm more unbid contracts.

"It is no surprise that, in the end, we were left with an overpriced system fraught with problems," the report said.

Tompkins pleaded guilty to misdemeanor charges that included steering unbid contracts to a firm that later gave him a $10,000-a-month consulting contract. He was sentenced to 275 hours of community service in February.

Although the attorney general and the governor's office went after the money, they got only $3 million back. They later complained that Tompkins allowed Andersen to write its own contract and it was too vague for them to tell how much was misspent or owed to the state.

In June 2002, auditors cited the same department 98 times for failures running the state's problem-plagued child support system, including failures to properly oversee contracts.

For example, the agency could have saved $181,000 by paying a contractor a per-item cost instead of the maximum monthly fee to run a computer system that keeps track of parents who owe child support when they get new jobs.

Both methods were allowed under the contract. But if the monthly payment practice had continued the department would have wasted $482,000 more over the next two years, the audit report said.

Dennis Evans, department spokesman, says most of the problems outlined in the audit have been fixed. Petro also says he has assigned a lawyer to work full-time on creating better government contracts designed to help the state and counties hold private companies more accountable.

Widner, head of the grape committee, an Ohio Department of Agriculture committee that spends about $600,000 a year promoting Ohio wines, welcomes such changes.

She says the scathing audit report, released in March 2002, convinced her to refuse to pay the private company for the $6,000 Cleveland wine tasting and to examine private contractor spending more carefully.

Widner notes that a former official with the committee - who auditors said took thousands of dollars worth of items, including 267 bottles of wine, a DVD player and an unopened VCR - returned the items and stepped down.

"At some point, it had gotten out of control," Widner says.

She says one marketing firm, Ohio Wine Producers, had failed to properly document spending, didn't turn in receipts and had become accustomed to spending money on items that weren't allowable, like buying tables at a charity auction where Ohio wine was served.

This year the committee contracted with a different marketing firm, she says, and, "Now the oversight is being enforced."

Donniella Winchell, the Wine Producers director, disagrees with the audits. But ultimately the firm repaid the committee $11,877- plus interest.

"We were presented a contract, and we put all of our energy into fulfilling the contract to the best of our ability," Winchell says. "We felt as though we fulfilled that contract."

Montgomery, who was attorney general before she became state auditor in January, agrees that the state needs to make sure agencies get more help writing and reviewing contract language.

"As Attorney General, we'd end up cleaning up scandals or violations in cases where the contracts had been poorly written," she says. "It's frustrating. There are no guarantees that these contracts have even been looked at by lawyers."

Not a priority

Montgomery says problems are especially common at the county level, where county attorneys don't always have time to review contracts.

She says contracts are sometimes so bad that, "even if we confirm private company misspending, there is no guarantee we'll get the money back."

Cheryl Phipps, superintendent of the Hamilton County Board of Mental Retardation, says it sometimes takes weeks for the county attorney's office to approve agency contracts or give opinions on proposed language.

But she notes the Hamilton County Mental Retardation Board has an edge over most other boards and agencies in Ohio: Phipps took the superintendent's post in January 2000 - just 10 months after earning her law degree.

"When I came on, I said to my staff, 'What would happen if we tell a company to (fix problems) and they don't do it?' Phipps recalls. "And they said, 'We don't know.' "

Phipps moved quickly to insert contract language allowing her staff to fire companies that fail to measure up. And she pushed for stronger protections, including a requirement that companies pay late fees out of their own pockets if they fail to pay a mentally retarded person's rent on time.

"Things like that wouldn't be on an attorney's radar screen because most attorneys don't understand our particular business," Phipps says. "It's a real disadvantage."

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