Shuffling Funds

As evidence mounts that the Public Works & Engineering Department routinely broke city rules governing construction contracts, the department continues to scramble for excuses. With the latest disclosures pointing directly at upper management, however, those excuses are sounding increasingly weak -- and desperate.

In the wake of several audits by the accounting firm Mir*Fox & Rodriguez that showed numerous irregularities in the inspection and testing of public works projects, the city requested that the firm investigate an additional 45 contracts. Mir*Fox has issued its draft report, a copy of which was obtained by the Press, and the results simply confirm what has already been aired in media and audit reports: Under former director Jimmie Schindewolf and his executive staff, the department apparently wasted untold thousands of taxpayer dollars and deliberately dodged the scrutiny of City Council to hide it.

As was the case with its previous audits, Mir*Fox found numerous instances in which work performed by contractors had failed various tests, yet nothing was ever done about it. In one case -- a paving job -- the testing firm's report noted 35 failures out of 40 tests taken.

In addition to the failed tests, the audits uncovered instances where the city paid for work that should have been reimbursed by the contractors; paperwork that was either sloppy, conflicting or missing entirely; and poor accounting that resulted in overpayments of at least $9,000.

All that should be old hat to public works watchers with a rudimentary knowledge of how the department operated under ex-mayor Bob Lanier. What may surprise even the most cynical observers, however, is Mir*Fox's finding of how frequently cash was shifted from one testing contract to another, or from a testing contract to a purpose entirely unrelated to testing. When funds for one contract were depleted, department officials simply tapped another contract for additional funds. This left the accounting of various projects in chaos. "As of February 16, 1998, approximately 70 engineering testing services invoices totaling $240,000 could not be processed for payment because over 30 of the related contracts had no remaining budget," the audit report notes.

"We also understand that during the past two years, over 120 engineering testing services invoices totaling $421,000 have been processed to about 50 alternate engineering testing contracts," the report continues. "Apparently this accounting practice has been used by PW&E since 1994; however, the records relating to the invoices processed during 1995 were manual and could not be located for our review."

Among the examples cited by Mir*Fox was a $240,000 contract with Hercules Engineering and Testing Services to do testing on the renovated Houston Police Department headquarters at 1200 Travis. According to the audit, $198,000 of the total was spent on work not authorized under the contract. Documents obtained by the Press show that $50,000 of that amount was funneled to SWH Management, a Hines subsidiary, which had a separate contract to supervise such functions as security, landscaping, elevator maintenance and other odds and ends.

The SWH contract had already been maxed out, however, so instead of requesting the additional money from City Council as required by the City Code, the Public Works Department paid it out of the Hercules contract. Though its involvement was strictly on paper, Hercules tacked on a 10 percent surcharge, bringing the total to $55,000.

The department now claims that the routing of funds was done "inadvertently," just a harmless little mistake that's easily corrected. In fact, that's what the department tried to do, offering an agenda item for the April 8 Council meeting that would have approved the maneuver retroactively. Evidently someone felt that councilmembers, who have shown almost no concern about possible mismanagement of the city's billion-dollar public works programs despite one embarrassing revelation after another the past ten months, would again be willing to sanitize the record with nary a peep. But controller Sylvia Garcia, whose staff has been coordinating the audits, pulled the item off the table to investigate it further.

Calling the juggling of funds "inadvertent" doesn't sound especially convincing, since invoices and other documents clearly show that at least three people approved the arrangement, including senior project manager Steve Harris, quality control employee Bill Pugh and assistant director Jerry Dinkins, who heads the Special Projects Division and supervised the 1200 Travis project. Even the most gullible sap would have a hard time buying the notion that none of them understood the basic premise at issue: Paying one company out of a contract with another is, at best, improper.

But dubious accounting practices weren't just tolerated under Jimmie Schindewolf -- they were encouraged. The Press reported last November that the city had paid the general contractor on the 1200 Travis job, Constructors Inc., $300,000 for asbestos abatement and other services that were shielded from Council view by being shuffled to another contract. The money was taken from a fund that accumulated lease revenues from a McDonald's and parking spaces in the building, a fund allegedly controlled by SWH, which has the freedom to spend the cash from the account on building maintenance and can account for it later. Dinkins later claimed that even though Constructors did the work, it was actually part of the SWH contract.

The department's official response to the latest bad tidings will make interesting reading, especially because the arguments used in the past, that the problems were isolated incidents rather than a pattern, will wear thin with repetition. The response was to have been filed late last week, but the information was not available at press time. Who handled the task is also a matter of interest, since deputy director Buddy Barnes, who has crafted the department's rationales in the past, has resigned, ostensibly to graze in greener private-sector pastures.

But given the spotty history of the 1200 Travis reconstruction, which went significantly over budget, the fiscal sleight-of-hand exposed by Mir*Fox should be of special interest to Council. Plagued by ongoing problems with asbestos contamination for months, the building is still not clean enough to fully occupy -- HPD's Juvenile Division has just been evacuated from the second floor for the third time since moving into the building last December. The problems were supposed to have been corrected. But they weren't, even though the city has shelled out several hundred thousand dollars to various firms (including Hines) for asbestos abatement, repairs and cleanup.

Several nagging questions are still hanging around 1200 Travis along with the asbestos. For example, if Hercules was supposed to do $240,000 worth of testing on the building, and almost $200,000 was spent on other items, was sufficient testing done? Why has the city paid out so much money for cleanup and abatement, only to have to do the same thing all over again? And are any of the firms responsible for the continuing fiasco still involved in the project and still racking up the bills?

No one with sufficient knowledge of the matter was available for comment, but a source who has worked extensively on 1200 Travis did offer his personal assessment. "This whole project was screwed up from day one," the source says, "and they're just trying to cover it up."

Contact Bob Burtman at Bob_Burtman@houstonpress.com.

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