HISD Administrator Tells Its Audit Office It Had No Right to Look for Fraud

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How dare they.

Houston ISD's Office of Internal Audit had no right to question how the district has been managing its 2012 bond funds, one of its chief administrators announced Wednesday. It was only supposed to check the administration's math in verifying whether a projected $211 million building shortfall was due to massive inflation.

That was the remarkable, jaw-dropping defense offered in writing by Houston ISD's Chief Operating Officer Leo Bobadilla Wednesday when the much awaited final audit report on the bond program was released. As had been expected, the auditor's office said yes there has been some inflation but attributed much of the financial overruns to poor cost management — of projects and subcontractors – and little competitive bidding.

According to Bobadilla, auditors had no right to look into that.

“This project was a limited scope review of the request for additional funding for the 2012 Bond Program with a focus on the recent calculations by management of the effects of inflation,” Bobadilla wrote.

“It was not designed to identify fraud,” he wrote – coming up with this aggressively defensive posture after more than a week of getting to think about it. (Did anyone else read his report before publication?) Throwing the HISD audit office under the bus in spectacular fashion, he charged that just by suggesting anything has gone awry at the district, the report has impugned the lives of many dedicated people.

“The [report] is a reckless and irresponsible indictment of the many design professionals, professional construction companies, project management companies, project advisory teams, and HISD staff who are involved in the 2012 bond program,” Bobadilla thundered.

So let's get this straight. Richard Patton, the chief audit executive, was tasked by the head of the Audit Committee to determine how the district's Construction and Facilities Services folks (already under fire for their on-the-fly, no board oversight, Job Order Contract program) came up with an inflation index of more than 30 percent that justified all these building cost overruns. But if he and his researchers discovered anything wrong or questionable going on, they just shouldn't mention it? And actually the audit office didn't bring up “fraud” – that was Bobadilla's word.

Bobadilla said the audit report used “flawed methodology, including insufficient data review, limited and biased research, an a profound lack of understanding of the Houston economic climate.”

But in terms of methodology, it's Bobadilla's work that comes into question involving what appears to be a very loose definition of “inflation” that seems to include construction delays, extra architectural designs and companies wanting more money to build things than was originally in the budget. Sure those things cost more, but they are not inflation. Poor management, maybe.

“We considered all influences which impacted construction costs and did not limit our review to inflation,” the Auditor's Office responded to Bobadilla. They divided cost increases into two areas: “a) true construction 'inflation' that is uncontrollable in the opinion of most economists and b) price increases partially due to lack of competition, excessive demand, and improvement opportunities.”

Bobadilla, who continued to insist that $211 million was totally justified by citing inflation of about 38 percent (the auditor's office maintains it's closer to 8 percent), provided none of the precise figures requested by the Audit Committee on the status of each and every school in the campus. There was no detailed project analysis. “Attacking the auditor is not explaining it,” one person close to the committee told us.

So we're back where we started. If trustees vote to approve the additional funds, they'll be doing it either because they have some special interest or they're going on pure faith. Although it's a little difficult to understand the faith angle at this point. All those taxpayers who lined up for the $1.89 billion bond program three years ago might have something to say about that.

Juliet Stipeche, chairperson of the Audit Committee who asked for the internal review, came to the defense of Patton and his office, saying they had done exactly what they'd been asked to do. “This report from the internal auditor is a report based on the request that was specifically made from the Audit Committee to our chief audit executive. Any type of response that this was beyond the scope is not the determination of the administration; it's the determination of the Audit Committee.”

“We started in January with a purported shortfall of $100 million, and in eight months' time, that increased to $211 million – that is over 100 percent increase,” Stipeche said Wednesday. “We still don't have a project-by-project analysis.”

Trustee Anna Eastman, also on the Audit Committee, echoed that last statement. “There was a specific request for a project-by-project analysis that was not part of the administration's response.”

“That's a very important part for a trustee, to have the confidence to ask the public to authorize any more funds to be added on to the bond,” Eastman said. “We very well may need to add money to some of these projects but I think it has to be very specifically requested and identified before we do that. And I don't believe they've provided that.”

Stipeche isn't ready to let the matter drop and would like to see an external audit done. Superintendent Terry Grier, a strong proponent of the inflation theory, is gone as of March, and Bobadilla may beat him out the door; he's leaving HISD for a similar job in Florida's Broward school district. Chances are they'll be out of town and long gone before the dust settles on this one. Or before we get any detailed explanations of much of anything. 

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