Auditor: ‘Lack of controls’ at MSD inflated expenses, cost customers $779K

The Metropolitan Sewer District of Greater Cincinnati
The Metropolitan Sewer District of Greater Cincinnati(Cincinnati Enquirer)
Updated: Sep. 14, 2018 at 3:31 PM EDT
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CINCINNATI, OH (FOX19) - A special audit of the Metropolitan Sewer District of Greater Cincinnati uncovered undocumented work, misuse of government funds, padded expense reports and other violations that cost customers about $779,000, according to Ohio Auditor Dave Yost.

He issued findings for recovery against the City of Cincinnati, Hamilton County and seven companies that did business with MSD and received improper payments.

The findings, announced early Friday by Yost’s office, are part of the 2 1/2 year-long audit between 2009 to 2015 performed by his Public Integrity Assurance Team.

As of Tuesday, $182,476 of the $779,164 (or 23 percent) owed to MSD has been repaid, although more repayments are possible in the coming days, Yost said.

The rest of the findings will be sent for recovery to the Hamilton County Prosecutor’s Office and State Attorney General, he tells FOX19 NOW.

“This audit confirms what many suspected – financial oversight and strong controls were lacking at Cincinnati’s sewer district,” Yost said. “Those at the helm showed little regard for ratepayers by passively signing off on excessive payments. Ratepayers are fortunate that more misspending didn’t occur given the lack of controls in place at MSD. They were asking for trouble.

"What’s most important, I think, is that the city, MSD, the county, have already started tightening up their controls, so that we don’t see this sort of thing, at least not to this degree, again.”

We have reached out to a city of Cincinnati spokesman for comment and a spokeswoman for Mayor John Cranley. We will update this story when we hear back.

Hamilton County officials said they were “highly concerned” over the audit’s findings.

“While the County is still reviewing the results of the Special Audit, the County is highly concerned with many of its findings and implications for County ratepayers,” they said in a prepared statement.

"The County will be assessing the report further for necessary corrective action steps and, to the degree they are not evident, will be requesting a report on corrective actions from MSD and the City as its agent in operating the utility.

"Recognizing that there are various issues in the Audit report which may be the subject of further investigation by the Hamilton County Prosecutor, the Board refrains from additional comment at this time.

"While the results of the Audit are of significant concern to the County, the Board of County Commissioners does wish to acknowledge and thank the hundreds of public servants employed by MSD who, each day, work with integrity and passion on behalf of the public and environment of Hamilton County. "

A spokeswoman for the Hamilton County Prosecutor’s Office had no immediate comment.

“We are currently reviewing the report. I will let you know if and when we have any comment,” wrote Julie Wilson in an email to FOX19 NOW.

The Ohio Attorney General’s Office is waiting to see if prosecutors determine in the next three months if findings in the audit raise to the level of criminal and/or civil action to recover the money, said Dan Tierney, AG spokesman.

If the prosecutors office takes no action within 120 days, the AG office can proceed with civil action to cover the funds, he said.

Former MSD Executive Director Tony Parrott is jointly liable for $461,594 of the unrecovered amount, the audit states. Margie Anderson, former superintendent of wastewater administration, is jointly responsible for $87,999.

Neither could be immediately reached for comment early Friday.

Parrott quit in 2015 after serving as MSD director for 10 years to take the same role at Louisville’s sewer district.

His departure came after an especially rough year. Two of the three Hamilton County Commissioners called for his firing, a city report determined he lied about where he lived, the city and county became embroiled in an ugly legal fight over control of the sewer district that persists today and now appears headed for court, and a merger between the sewer district and the city’s water works was called off.

In other highlights of the audit, the heftiest finding for recovery leveled against a company was Urban Strategies & Solutions for $294,000.

Former Cincinnati City Councilman Sam Malone is listed as the registered agent, state records show.

The company received the money from MSD to provide “tracking, monitoring, research, or consultation” services from January 2013 through May 2015, according to the audit, but no documentation existed to support the work or the resulting payments.

“Even more odd, is that they ran it through a law firm to pay, and there’s no good business reason to do that, unless you’re simply trying to avoid scrutiny of the normal, public process," Yost said in an interview with FOX19 NOW.

MSD also continued to pay invoices from the company during a period when the work should have been suspended, auditors found.

Malone could not be reached for comment Friday morning. His listed phone number rings without the option of leaving a message.

Another company, Focus Solutions, owes $163,261 to MSD for excessive and improper billings from 2011, the audit concluded.

It also found 23 instances where time sheets for the company’s president, Zola Stewart, listed 24 hours or more of work performed in a day, records show. Auditors said they identified improper payments totaling $74,373 for the misreported hours.

Additionally, Focus Solutions billed MSD $75,888 for work that was not directly related to the district, but was instead for the nonprofit organization, Project Rebuild Workforce Collaboration Foundation Inc, according to the audit.

MSD paid $92,546 to Ribway Engineering Group and $18,777 to the law firm Crabbe, Brown, & James for work that benefited the foundation.

Several more findings for recovery totaling $137,742 are against the city of Cincinnati for billings to MSD that were excessive or did not serve a proper public purpose, the audit shows.

The city repaid the full amount after auditors notified officials of the charges, records released Friday state.

“We found other things, misspent money, things that were, for example, authorized, we have one that we’re referring to the Ohio Ethics Commission, where someone was authorizing payments and work to an engineering firm, that employed his son and the son was getting the work that was authorized," Yost said in an interview. "Looks like a clear conflict of interest, but we’ll let the Ohio Ethics Commission rule on that.

“The underlying control problems, went on for years and years before we showed-up. The fact of the matter is, until we showed up, they didn’t really start tightening things down. Things are better now, but this had been going on for years, maybe decades.

“The underlying contract that was in place when we did this audit, was basically like giving your credit card to your teenagers and not asking for receipts," Yost said.

“We also found an instance, where one consultant was billing for more than 24 hours of time in one day. And the defense was supposed to be, well, other people were doing the work, but we couldn’t determine that from the payroll records.”

Other special audit findings include:

· Hamilton County charged MSD $9,072 for expenses that were either paid twice, unallowable or lacked proper supporting documentation.

· RA Consultants used incorrect billing rates for its employees, causing MSD to overpay the company by $30,159.

· Ribway Engineering Group used the wrong billing rate for an employee, resulting in overpayments totaling $16,045 from MSD.

· Focus Solutions continued to invoice MSD and was paid $13,000 during a period when the company’s work should have been suspended.

· MSD paid $12,000 to Ellington Management Services to review and enhance its rules and guidelines for the Small Business Enterprise program. However, the company’s final draft submitted to MSD had no significant changes and did not enhance its policies.

· No supporting documentation existed for $5,423 in travel expenses invoiced to MSD by Early Morning Software. The company also charged a duplicate $139 lodging expense, which MSD paid twice.

Below is a summary of all findings for recovery and repayments listed in the report:

· Urban Strategies & Solutions: $294,000

· Focus Solutions: $163,261

· Ribway Engineering Group: $108,591 ($16,885 Repaid)

· Greater Cincinnati Water Works: $82,366 (Fully Repaid)

· City of Cincinnati Planning Department: $48,536 (Fully Repaid)

· RA Consultants: $30,159

· Crabbe, Brown, & James: $18,777 (Fully Repaid)

· Ellington Management Services: $12,000

· Hamilton County: $9,072 (Fully Repaid)

· City of Cincinnati Finance Department: $6,840 (Fully Repaid)

· Early Morning Software: $5,562

Read the entire audit and the city’s response below:

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