Fraudits with Less Than a Full Deck
Originally posted on CityStink
December 23, 2011
By Al Gray
The author, Al M. Gray, was President of Cost Recovery Works, Inc., a provider of Cost Avoidance and Cost Recovery for America’s leading companies, businesses and governments desiring Superior Returns. Cost Recovery Works is no longer in business, as of December 31, 2020.
OK, “Fraudits” isn’t really a word, but it is what one gets if he starts out with Augusta City Administrator FRed (Russell) leading AUDITS which might find FRAUDS in Augusta-Richmond County’s ill-fated TEE Center and, specifically, the $12 million parking deck built by that government on land it mostly doesn’t own. Dispensing for a moment with this non-word that, in this case, makes sense with nearly perfect symmetry, Augusta’s commissioners should focus on the one word that really matters – Independence.
This is written by an author from some knowledge on the subject, having served within the internal audit departments of two Fortune 500 companies for a decade. A significant number of our cost recovery consulting operations since those years have been responsive to initiatives by corporate directors of internal audit. An even more pertinent factor is that this writer once recused himself from an audit being performed by subordinates. Forensic audits are tasked with such weighty matters, including amassing evidence for criminal prosecution, that failure to achieve total independence taints and ruins the findings.
The 6-4 vote this past Tuesday by the Augusta Richmond County Commission, on a substitute motion brought by Commissioner Alvin Mason, to engage a forensic auditing firm to investigate and report on the progression of events leading to construction of the TEE center parking deck was commendable. After all, meeting minutes from December 9, 2009 show Commissioner Johnny Hatney was told very clearly by Mr. Russell that the land under the deck was to be donated to the city. Yes, there were minutes from an earlier meeting in which there was discussion of the city gaining “air rights” above the ground floor while 933 Broad Street, LLC, the land owner, retained ownership of the land under it. There might be justification for such hybrid ownership by bond financing requirements of a certain percentage of private partner ownership. It might have saved financing cost at the same time it obligated taxpayers. Much has been said in the media about these things, but most information is conflicting, changing, and biased as to sourcing.
Mr. Russell is at the epicenter of the confusion. Mr. Russell is tasked with selecting the forensic auditor to investigate the confusion. The process is circuitous – it leads nowhere and no one will believe the results if the investigation proceeds on this basis.
What has been revealed also points to issues within Augusta’s Law Department and special counsel it engaged for the TEE Center, associated deck construction, and financing. Answers from that quarter should have been immediately forthcoming, not three months of confused dawdling.
Forensic audits are serious business. When this writer worked for SLKP as its capital projects auditing manager within the internal audit department, our audit director and senior management without fail moved quickly to engage very tough outside forensics auditors and fraud examiners to achieve ultimate independence in every case where fraud appeared likely to have occurred. The forensics auditors quickly fire-walled off the investigations to the point that even we internal auditors who discovered the fraud were excluded. Why? Independence! This needs to be job #1 with the deck audit, as well.
One contractor payroll audit our capital projects audit unit performed at another company indicated a chance that the paymaster, a friend, had committed fraud in the form of forgery and issuing bogus paychecks. When this unhappy situation came to light, the staff auditor in charge was directed to exclude this writer who was his manager, and conduct the investigation directly with the contractor’s fraud investigators and the company Director of Internal Audit. Their investigation led to an admission of guilt, dismissal, and full restitution of the funds stolen. In that instance those directing the investigation chose not to prosecute. In other cases involving commodity procurement, accounts payable, data processing, engineering, and construction fraud, the perpetrators were prosecuted, tried, and convicted. The bare-knuckles forensic auditors handled every one of those. What looked to be overkill never failed.
That parking deck fiasco on Reynolds Street is tremendously complicated. The Limited Liability Corporations owning land under the deck and in an ongoing joint venture with Augusta’s Convention and Visitor’s Bureau apparently enjoy common ownership with Augusta’s daily newspaper, which has understandably been almost totally silent on this matter. A state senator got caught up in this controversy inadvertently with a generous land swap. The TEE Center contract has the contractor working on cost-plus (albeit limited by a Guaranteed Maximum Price) basis on new construction, a historic building to be preserved, coordination with ongoing operations, a brown field site, and on land that the owner doesn’t own. A further complication is that the contractor’s CEO is running for Congress. A final consideration is that the Tee Center itself seems to have been sold on faulty premises on a foundation of years of controversial situations arising from the city’s public private partnership with the LLC’s, most of which were resolved at considerable expense to Augusta Richmond county taxpayers.
No forensics audit is going to clear the air from all these things. The smoke is welling up from too many places, some of them decades old.
What the immediate forensics audit can do is to report the sequence of events leading to the deck being built on mostly private land, whether that outcome was legitimately directed by financing requirements, and whether reports to the commissioners were consistent with the facts known by the city law department and the county administrator at the time of the reporting. The final product is more likely to deal with competence than fraud and whether answers to commissioners’ questions by the administration have credibility. If the forensics team finds evidence of fraud, they will pursue it.
Commissioner Grady Smith’s suggestion that an Augusta Richmond County grand jury investigate the situation before engaging a forensic auditor has no small degree of merit. A grand jury has subpoena power and if it strikes a brick wall of, say, the city attorneys and their outside counsel claiming attorney-client privilege with respect to the LLC’s what is the point of a forensics audit? A grand jury is a least independent of Fred Russell.
Furthermore, to this observer the forensics audit should definitely extend to the TEE Center planning, design, contracting, and change orders. Since this enormous project features the same project management, construction management, and administration as much of the city’s overall capital improvements program, issues that are identified, reported, and recommended upon will likely have precursors in prior projects and commonalities with current ones.
It is far from a stretch to assert, that this audit, properly done, should pay for itself.
This author has always been guided by the principle that once it is determined that someone is too crooked or too incompetent to be handling his money, it really matters not the intent, but the result. Then one removes the threat while recouping his money.
The people are watching this situation intensely as it calls into question not just governmental integrity, but that of the media, as well. Handle it will independence, diligence, and completeness Augusta Commissioners. You only have one shot at it. Don’t let it be deflected by Fred Russell. That is a habit that must end. You have to be INDEPENDENT, not purveyors of a smokescreen-spewing FRaudit.
City Stink contributor Al Gray is President of Cost Recovery Works, a Lincoln County-based firm providing cost recovery and cost avoidance services focused on large construction projects, contracts administration, local taxation, land use planning, public policy, manufacturing plants and incentives. Cost Recovery Works was closed down in December, 202. Examples of his work are to be found at ConstructionAudits.com