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July 18, 2012 Town of Saugus To the Honorable Board of Selectmen: This is the Third and Final Report of our findings relevant to the scope of services outlined in our engagement letter and initial findings reported to you on April 17, 2012. This report focuses on financial irregularities, compliance and noncompliance with laws and regulations as they relate to municipal procurement of goods (salt, sand, paper) and services (rental of equipment, leasing of equipment, hiring a custodial service), (M.G.L. c.30b), building related repairs (infrastructure repairs to buildings and building systems), and construction (new windows, roof, remodeling), (M.G.L. c. 149), and public works construction (no-building such as bridges, roads, sidewalks, catch basins), (M.G.L. c.30, §39M). The issues identified in this report were obtained from information we received in our initial interview with the Temporary Town Manager, Town Accountant, and Treasurer Collector. In addition to the initial interviews, we met with the Supervisor of Purchasing and Human Resources in order to gather additional information relevant to the past procurement practices. The investigation activities and findings, which we previously reported on, provided insight into a number of issues relating to the past procurement practices. The Town Charter designates the Town Manager, as the CPO (Chief Procurement Officer) and, as per Article 2 of the Town Charter, “shall purchase all supplies and materials and equipment except books for schools, and shall award all contracts for all departments of the town”. The Town has internal policies and practices for requisition and procurement activities. This report is intended solely for the information and use of management of the Town of Saugus, Massachusetts.
Scope of Work
The scope of work focused on examining the procurement activities and controls for many of the transactions, which had been previously, reported in our prior report on operations. We also reviewed with the Purchasing Assistant, the Chief Administrative Aid and the Town Accountant the procurement activities relevant to a sampling of the major Capital Projects undertaken in FY 2009 and 2012. And finally we reviewed the procurement activities that were reported by the Purchasing Assistant as “Procurement Issues”. Not all transactions were selected and therefore there is a possibility that not all violations have been identified.
Furthermore, we have outlined the procurement practices and related procurement issues that we believe are not in compliance with the laws and regulations as they relate to municipal procurement, M.G.L. c.30b, M.G.L. c. 149 and M.G.L. c.30, §39M. We have also reviewed the internal practices as they relate to compliance and/or noncompliance with the internal policies of the Town of Saugus and that were conducted under the direction of the former Town Manager. We reviewed a sampling of the procurement transactions related to Town expenditures and did not review the transactions of the School, and many of the non-construction related purchases made by department heads and staff, on behalf of the Town; such as Building Maintenance, Police Department, Fire Department, Youth Services, and Town Hall Administrative and Financial Services.
Summary of Current Findings
We obtained vendor disbursement ledgers and general ledgers reports and documents that provided the detail and support for the Town’s purchasing activity for the vendors selected for review. In most instances, the information reviewed covers the period of June 1, 2010 through March 15th, 2012. In some instances we reviewed documents pertaining to FY 2010 and prior. The vendors selected were based on volume of activity with the town, or from the items listed on the internal report generated by the Town Purchasing Assistant, Town Accountant and Town Treasurer. Follow up interviews were conducted with the Purchasing Assistant, Supervisor of Human Resources and Purchasing, Town Accountant, and Treasurer for clarification purposes. We found procurements that were completed in compliance with municipal procurement laws, rules and regulations. However, we have also found that there were numerous instances, providing clear evidence to support the fact that there were significant violations of municipal procurement laws, rules and regulations for many other transactions tested. Our findings lead us to believe that there was a systematic, knowledgeable and intentional violation of the municipal procurement laws, rules, regulations, town policies and procedures. These actions have led to misleading and fraudulent accounting of the actual nature of the financials and transactions for the period under review. Practices Inconsistent with Written Policies We found that many of the instances under review occurred after the Purchasing Assistant had informed, via interdepartmental memo, all department heads of the proper procurement methods that needed to be adhered to in order to be incompliance with M.G.L. relative to procurement. Many of the department heads, including the former Town Manager, continued with practices inconsistent with the procurement laws and regulations and internal policies after they had been notified of the proper requirements. 3
Closed Bid Procurement Issues Reviewed (Identified and Documented by the Purchasing Assistant) The Town provided us “A List of Closed Bids With Procurement Issues” which identified 23 instances that the Purchasing Assistant documented non-compliance with procurement law and regulations. These transactions are discussed in detail later in this report. We reviewed these issues and have identified the following: The first seven instances related to the purchase of vehicles from Brothers Auto Body of Revere. The combined total paid for all seven vehicles was $92,425. The Purchasing Assistant documented most times that the former Town Manager had already identified a vehicle and cost from Brothers Auto Body before the other quotes were obtained. The Purchasing Assistant stated that the former Town Manager told her to obtain quotes higher than the Brothers Auto Body amount. The former Town Manager instructed the Purchasing Assistant to complete purchase orders for jobs without obtaining the necessary quotes from competitors and instructed her to release cash surety bonds to vendors without inspection of the completed job. It is important to note that in some instances bonds or cash sureties’ where not recorded with the Town Treasurer, which is the formal practice in place for the Town of Saugus. Frequently purchase orders were not generated per protocol in the purchase of town vehicles and/or parts associated with town vehicles. Quotes for vehicles were repeatedly obtained by the Purchasing Assistant and were not used by the former Town Manager when making a decision on which vehicle to purchase.
Other Procurement Findings (Identified through the scope of our work) We reviewed the procurement practices relevant to the towns non-health related insurance policies. We found that the process had major flaws and, at the very least gave the perception that preferential treatment was given to the Insurance Agent sourcing the insurance policies. We found that the procurement activities relevant to the Town’s major capital project initiatives were managed in compliance with procurement laws and internal purchasing policies. In these instances an engineering firm had oversight of the procurement process.
In reviewing the procurement activities for many of the non-bid related construction purchases and construction related purchase of services activities we have concluded that a vast majority of the purchases should have been procured under the M.G.L. closed bid procedure and thus were procured in a non-compliant manner.
Specific Non-compliance Issues: Internal Procurement Practices and/or M.G.L. Procurement Procedure for the period FY2008 through FY2012 (March 15)
After review of the report entitled “A List of Closed Bids With Procurement Issues” which was provided by the Town of Saugus, as well as highlighted procurement issues identified by the Purchasing Assistant, several instances became evident in which disregard for procurement laws occurred. These violations were affiliated with the purchasing of town vehicles, construction, and maintenance and landscaping jobs. The total cost of the purchases/jobs in question is $706,294.86. Brothers Auto Body The Purchasing Assistant identified the purchase of seven vehicles from Brothers Auto Body, where municipal finance laws, procurement laws, rules, regulations and procedures were violated. These purchases total $92,425.00 and occurred between March 2009 and September 2011. The Purchasing Assistant documented the following: The Purchasing Assistant stated that in most instances the former Town Manager already either had an invoice or quote from Brothers Auto Body before the Purchasing Assistant started the process of obtaining the required quotes. The Purchasing Assistant stated that in most instances that the former Town Manager instructed her to obtain quotes for comparison vehicles that were higher than Brothers Auto Body. The Purchasing Assistant was instructed to “go through the motions” on one occasion when obtaining quotes for other vehicles in order to make it appear that procurement rules were followed. Five of the seven purchases from Brothers Auto Body were salvaged vehicles. The similar quotes obtained were not for salvaged vehicles and therefore should not be compared during a valid procurement process. The Purchasing Assistant said that comparing a salvaged vehicle to a used vehicle is like comparing apples to oranges. We agree with this assessment. On two occasions an invoice for a vehicle’s purchase already existed and was presented to the Purchasing Assistant by the former Town Manager. The Purchasing Assistant stated that the former Manager had already purchased the vehicle before I obtained the quotes and was told after the fact. 5
Salvage vehicles were repeatedly purchased from Brothers Auto Body of Revere over competitively priced non-salvage vehicles from other vendors. It is important to note that a salvage vehicle is one that has been involved in an incident or accident severe enough to be deemed a total loss by an automobile insurance company. Therefore collision insurance is not obtainable as the vehicle is considered to be salvage, not matter what the useful life may be. The Town spent an additional $23,828 for three used vehicles purchased from Brothers Auto Body during a twelve-month period, from FY2008 - FY 2009. These purchases were made without the involvement of the Purchasing Assistant, no bid documents were found and no purchase orders were located for the procurement of these vehicles. The Town also had vehicle repair work performed by Brothers Auto Body on thirty vehicles from FY 2009 to FY 2011. The average repair bill was $1,668, and no purchase orders were issued for these procurements. It is apparent from the documentation and discussion with the Purchasing Assistant that the former Town Manager used his position to purchase these vehicles and obtain repairs from Brothers Auto Body by circumventing procurement regulations. Caruso Construction In one instance involving the construction of a wheelchair ramp by Caruso Construction, the former Town Manager advised the Purchasing Assistant to waive the performance and payment bond required and to return the vendor’s cash bond before the job was completed and/or inspected. As a result, the vendor was able to submit additional invoices for debris removal totaling $7,412.50. Debris removal was included in the original specifications of the job and should not have been incurred as an additional cost to the Town of Saugus. There were numerous other substantial construction and repair jobs awarded to Caruso Construction without adhering to the bid process procedures, receiving quotes or at the very least a adhering to internal polies and procedures for procurement. In many instances, no purchase orders were issued. L.A. Mechanical In an effort to have a procurement be awarded to L.A. Mechanical for the removal of an underground storage tank at Evans School, the former Town Manager instructed the Purchasing Assistant to complete a purchase order for the job without obtaining the necessary quotes from competitors; this occurred on the last day that he worked for the Town of Saugus. The Purchasing Assistant did not follow the former Town Manager’s 6
request and advised Town Counsel of the situation. Subsequently the Purchasing Assistant obtained three quotes for the removal of this tank; all of which were below the $14,840.00 quoted by L.A. Mechanical. The job bid was awarded for approximately $5800. In addition, L.A. Mechanical was awarded several HVAC, boiler and tank service and repair jobs without a bid or quotes, all of which were above the threshold and required it.
Prevailing Wage In a case involving the construction of wheelchair ramps by J. Marchese & Sons, prevailing wage was intentionally omitted from the request for bid by the former Town Manager in an attempt to circumvent paying it. This job was paid for using Chapter 90 funds, which require prevailing wage be paid.
Issues relating to the Procurement of Goods and Services and/or Public Works (non-building) Construction The disbursements reviewed consisted of work performed by many vendors, in reviewing 608 purchases totaling $4,517,147 we found that 551, totaling $1,344,838, were not in compliance with Massachusetts Procurement Laws. These orders, if procured properly were, in most, if not all instances, would have required that Mass General Laws for sealed bid procurement procedures be adhered to. We find it noteworthy that the average value of each order; excluding the Sealed Bid Purchases, was $2,441. We believe that this was to keep most orders under the procurement threshold of $5,000 in order to give the appearance that the Mass General Law procurement requirements were being met. We also found in this group that 227 of the 551 purchases were made without a purchase order being issued. Upon requesting back up documentation (quotes) for the procurement activity we reviewed, none has been provided. Below is the detailed listing by service or construction category.
Brook Cleaning and/or Brush Cutting The Town of Saugus spent $119,700 on the cleaning of brooks and/or the cutting of brush. Sixty-four orders were filled and of those orders seven were done so without issuing a purchase order, a basic procurement policy requirement. The average order amounted to $1,870 and was placed with and performed by Agganis Construction.
Load/Haul Unsuitable Material The Town of Saugus spent $35,611 on the loading and hauling of unsuitable materials. Twelve orders were filled and of those orders, one was without the proper purchase order. The average order amounted to $2,967, and was placed with and performed by Agganis Construction and Caruso Construction. Emergency Water Breaks/Fire Hydrant Repair/Sink Hole Repair/Sewer Emergency The Town of Saugus spent $190,656 on work related to emergency response. Seventysix orders were filled and of those orders twenty-five were without the proper purchase order. The average order amounted to $2,509 and was placed with and performed by Agganis Construction, Cooper Brothers Paving, Scott Wetherbee Construction and Caruso Construction. We noted that the internal labor costs associated with the installing a Hydrant is estimated at approximately $200, well under the $2,509 average incurred with the vendor. Build/Re-build Catch Basins The Town of Saugus spent $24,125 on catch basin installation and repairs. Ten orders were filled and of those orders three were without the proper purchase order. The average order amounted to $2,412, and was placed with and performed by Agganis Construction, Caruso Construction and Scott Wetherbee. Tree and Stump Removal The Town of Saugus spent $66,929 on tree and stump removal. Twenty-five orders were filled and of those orders one was without the proper purchase order. The average order amounted to $2,677, and was placed with and performed by Kevin Bobrek and Scott Wetherbee. General Landscape Maintenance The Town of Saugus spent $18,975 on general landscaping. Nine orders were filled and of those orders five were without the proper purchase order. The average order amounted to $2,108, and was placed with and performed by Agganis Construction and Kevin Bobrek. Drain/Water/Sewer Line Inspection/Cleaning The Town of Saugus spent $55,415 on the inspection and cleaning of drain, water and sewer lines. Forty-six orders were filled and of those orders twenty were without the proper purchase order. The average order amounted to $1,205, and was placed with and performed by Wayne’s Drains.
Hazardous Waste Cleanup and Removal The Town of Saugus spent $121,086 on the cleanup and removal of hazardous waste. Twenty-three orders were filled and of those orders all twenty-three were without the proper purchase order. The average order amounted to $5,265, and was placed with and performed by Removal Specialists. Upon further review it was determined that the Purchasing Assistant was completely unaware that the services were procured.
Water System and Hydrant Related Supplies The Town of Saugus spent $189,046 on supplies related to hydrants and the water system. One hundred sixty-four orders were filled and of those orders eighty-six were without the proper purchase order. The average order amounted to $1,153, and was placed with and performed by Water Works Supply. Manhole Installation and Repairs The Town of Saugus spent $26,302 on the installation and repair of manholes. Five orders were filled and of those orders all were without the proper purchase order. The average order amounted to $5,260, and was placed with and performed by Agganis Construction, Caruso Construction and Scott Wetherbee. Berm and Sidewalk Installation and Repair The Town of Saugus spent $118,896 on the installation and repair of sidewalks and berms. Twenty-two orders were filled and of those orders eleven were without the proper purchase order. The average order amounted to $5,404, and was placed with and performed by Cooper Brothers and Caruso Construction. Road Grading and Paving The Town of Saugus spent $45,374 on road grading and paving. Eighteen orders were filled and of those orders fourteen were without the proper purchase order. The average order amounted to $2,521, and was placed with and performed by Agganis Construction, Caruso Construction and Cooper Brothers. Compliant Purchases Sealed Bid Contracts – In Compliance The Town of Saugus spent $3,386,925 on sealed bid contracts. Sixty-three orders were filled and we found the procurement process to be in compliance. The average order amounted to $54,761, and were placed with and performed by Agganis Construction, D & R General Contractors, DeFelice Corporation and National Water Main. 9
Engineering Services– In Compliance The Town of Saugus spent $65,933 on engineering services. Twenty-seven orders were filled and we found the procurement process to be in compliance. The average order amounted to $4,704, and was placed with and performed by Engineering Alliance and Weston & Sampson. Street Sweeping– In Compliance During FY 2011 the Town of Saugus spent $61,949 on street sweeping. Eighteen orders were filled and we found the procurement process to be in compliance. The average order amounted to $2,442, and was placed with and performed by American Sweeping.
Noncompliance with internal policy and disregard for adherence when notified of noncompliance The following was issued to all department heads by the Purchasing Assistant and copied to the Town Manager and Town Accountant on April 15, 2008 and June 15, 2009 respectively. April 15, 2008 I have enclosed an Emergency Request Form for you to complete and make copies for your own departments, when emergency procurements exceed $5,000. Purchases over $5,000 require that you provide three price quotes from three different vendors and award the contract to the responsible vendor offering the supply or service needed for the best price. Contracts over $25,000 require a Sealed Bids. As you will see from the attached form the rule for allowing an emergency purchase is when the time required complying fully with Chapters 30B or 30.39M requirement would endanger the health, or safety of people or property due to an unforeseen emergency. The emergency provision of the law states that even under emergency circumstances, you must comply with either Chapter 30B or Chapter 30.39M to the fullest extent possible. If you should have any questions, please feel free to give me a call at X 125.
June 15, 2009 Effective June 15, 2009 a purchase order must be completed in advance for purchases of $500.00 or more to encumber funds. Without an approved P.O. completed in advance, NO invoices will be paid! All vendors will be notified that they should not accept requisitions of supplies and services without a purchase order number. The Chapter 30B bidding thresholds for supplies and services are as follows: less than $5,000.00 use sound judgment as to which vendor will give you the best price/quality and service. $5,000.00 - $24,499.99 you will need to seek three written quotes. Over $25,000.00 must go out to bid. For auditing purposes the following information is critical to the body of the purchase order: Identify the location of the work; identify which vehicle is being worked on; for items purchased, a brief description is necessary; if items are purchased from the State Bid please note “purchased from State Bid List” and if referring to a proposal or bid, please identify as such. If you should have any further questions, please feel free to contact me. Thank you in for your anticipated cooperation. Further, the Purchasing Assistant forwarded a memo to the DPW director on October 20, 2009 strongly suggesting that he provide a scope of work regarding brush cleaning so that type of work could be put to bid. The written communication of these procedures clearly exhibits that any procurement made by the former Town Manager and/or his designee would require that, at the very least, a purchase order be issued if the value is greater than $500 and that the Massachusetts General Procurement Laws be adhered to in all instances. The following email was issued from the former Town Manager to the Purchasing Assistant on March 19, 2010. This email was in response to one forwarded from the Purchasing Assistant to the former Town Manager regarding tree work he had requested be completed by a certain vendor. March 19, 2010 Just so you, Tim (Park Department Foreman), and everyone else know there is a chain of command and I am the top commander. That information can be relayed to Joe, or whomever, when I ask for something to get done. The WORST thing that can happen is for someone to ignore my request.
Conclusion With the assistance of current Town employees, we have reviewed many instances where the former Town Manager authorized payment to vendors and procured goods and services that were questionable or not in compliance with laws and regulations. It is important to reiterate that the Town Manager is the CFO, CEO, and Chief Procurement Officer for the Town of Saugus. The internal protocols relevant to these functions were approved or established by him. The procurement practices and procedures previously issued by the Purchasing Assistant should have been adhered to. The recently appointed Town Manager now requires that these procurement practices and procedures be followed and a new Cash Management and Budget Coordinators Position has been established to monitor and report on compliance related to these matters as well as others. We saw evidence and were informed that the previous former Town Manager used language stating that he was authorizing non-compliance to procurement practices and/or payments to vendors without issuing a purchase order for reasons, such as, he wanted to save the Town money or he wanted a particular vendor to have the lowest quote. It is apparent, based on the evidence we reviewed, that these significant financial violations of laws and regulations was an effort to intentionally cover up the actual nature of the transactions with full knowledge that they were actual violations. Although the former Town Manager may have authorized these transactions, it does not relieve other employees from their responsibilities not to process transactions that they know are not in compliance with laws and regulations. This report is submitted to the Board of Selectmen on July 18, 2012.
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