Fraudits with Less Than a Full Deck
By Al Gray
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.
Good luck.***
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