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TESTIMONY Of Deborah K. Nichols District of Columbia Auditor Before the Committee on Government Operations Monday, May 9, 2005 CHAIRMAN ORANGE AND MEMBERS OF THE COMMITTEE ON GOVERNMENT OPERATIONS, I am Deborah K. Nichols, District of Columbia Auditor. Accompanying me today is Ms. Leigh Slaughter, Legal Advisor to the Office of the District of Columbia Auditor. Thank you for the opportunity to summarize for the Committee our findings on sole source non-competitive procurements issued by the Executive Office of the Mayor, Office of the City Administrator, and Office of the Deputy Mayor for Economic Development relative to the Mayor's trip to China and Major League Baseball in the District of Columbia. All of the transactions I will summarize to day involved the expenditure of local appropriated dollars. My testimony will focus specifically on transactions involving contractors Lily Hu, Melinda Yee Franklin, and Jane Brunner all residents of Oakland, California, in addition to Ira Sockowitz of the Phoenix Consulting Group, based in Chevy Chase, Maryland, and Strategic Advisory Group, LLC of Duluth, Georgia. SUMMARY OF SOLE SOURCE NON-COMPETITIVE TRANSACTIONSI. Services Procured From Lily Hu and Melinda Yee FranklinI will begin my testimony with services provided by Lily Hu and Melinda Yee Franklin for the Mayor's trip to China. The Auditor found that the transactions with these two consultants involved a $25,000 flat fee sole source non-competitive agreement. The consultants were identified by the City Administrator as individuals who were experienced and knowledgeable in planning and executing trade missions. There was no contract authorizing the work performed or payments made to these consultants. In fact, these consultants were permitted to begin work without a valid written contract or purchase order and the encumbrance of funds to pay for the services they were to perform. The District's procurement law and regulations specifically and clearly state that: No District employee shall enter into an oral agreement with a vendor to provide goods or services to the District government without a valid written contract", and further state that "any violation shall be cause for the employee's termination." [D.C. Official Code § 2-301.05(d)(2).] The Auditor found only an unsigned, undated document entitled, "Statement of Work" which set forth a cost of only $15,000. No contract administrator or contracting officer was identified, and no total cost, payment terms or conditions were set forth in this document. The Statement of Work indicated that the "contract" covered the period September 6, 2004 to November 1, 2004, however, the consultants began work on or about August 6, 2004. As stated in Title 27, the contracting officer is the only District official authorized to sign contract documents and to contractually bind the District. There was no apparent involvement of an authorized contracting officer in this transaction until early October 2004 when a requisition was entered into the PASS system for OCP to process a procurement covering $15,000 of the $25,000 transaction with these consultants. In essence, there was no apparent advanced planning done by the Executive Office of the Mayor regarding the type of contractual services that would be needed to plan and execute the China trip. Inexplicably, the Office of Contracting and Procurement (OCP) was not involved in this transaction until well after the consultants had begun rendering services. At the time OCP began work on this transaction, they were not informed by the Executive Office of the Mayor that the consultants were already performing services. When the facts of the situation became clear to OCP, its job became one of rectifying a transaction that did not conform to procurement and financial rules, regulations, and standards at its inception. The device used by OCP to give the appearance of legitimacy to this transaction after the fact was a Determination and Findings Statement for a Single Available Source Procurement. The D&F was nothing more than a sham. In addition to the $15,000 covered by the D&F approved in early October 2004, the Auditor found that each of the consultants had submitted $10,000 invoices, dated 9/30/2004, for services rendered under the oral agreement. These invoices could not be paid because there was no official authorized contractual basis for the payments and funds had not been encumbered in the financial, system to pay for the services. Paying these invoices created significant problems in that the services rendered by the consultants represented unauthorized commitments under an oral agreement or without a valid written contract. The District's procurement law and regulations specifically and clearly state that: No District employee shall authorize payment for the value of goods or services received without a valid written contract. Approval to pay the $10,000 invoices had to be obtained from the District's Acting Chief Procurement Officer through the ratification process. A ratification is defined as the action by the CPO to authorize payment for goods or services received by the District without a valid written contract. The Auditor found that a Ratification Request was submitted by the Office of the City Administrator on or about December 17, 2004, however, the Auditor further found that $10,000 payments were improperly processed through the District's financial system by direct voucher on December 14, 2004 and paid on December 16, 2004 (DS004112) long before the CPO approved the payments on January 6, 2005. Payments to the consultants using the- direct payment methodology were highly irregular in that they bypass procurement and can escape OCP's knowledge. OCP did not approve the ratification request until January 6, 2005. These payments violated procurement regulations and OCP's ratification policies and procedures. II. Services Procured From Jane BrunnerMs. Jane Brunner, a resident of Oakland, California, was identified by the City Administrator as a person eminently qualified and experienced to assist the Department of Employment Services to establish and implement an overall strategy for meeting Mayor Williams's objectives of increasing the number of pre-apprenticeship and apprenticeship opportunities available to District of Columbia residents and enlarging the universe of qualified apprenticeship applicants in the District. In early June 2004, a sole source non-competitive one-year contract, with a one-year option, was awarded to Ms. Brunner by the Office of the City Administrator to perform work ostensibly for the Department of Employment Services. The contract was not to exceed $90,000. The hourly rate established under the contract was $185 per hour plus expenses. It was expected that Ms. Brunner would bill the District approximately $7,500 per month during the one-year period of the contract. This procurement was not handled by the Office of Contracting and Procurement and thus it did not comply with policies and procedures set forth in the District's procurement law and regulations. This contract was never executed on behalf of the District by a contracting officer with sufficient written delegation of contracting authority necessary to bind the District. The City Administrator's contracting authority is limited to $25,000 and the City Administrator's Chief of Staff lacked any apparent contracting authority. Despite these deficiencies, the contract was signed on behalf of the City Administrator by his then-Chief of Staff. No market survey was performed to determine if the hourly rate established for the work under this contract was fair and reasonable. Further, no Determination and Findings Statement was prepared to justify the sole source noncompetitive award to Ms. Brunner as required by relevant provisions of Title 27 DCMR Chapter 17. In July 2004, Jane Brunner began submitting invoices that included charges for work related to the development and negotiation of a project labor agreement that appeared to be well outside the scope of her contract to "establish an overall strategy for meeting Mayor William's objectives of increasing the number of pre-apprenticeship and apprenticeship opportunities available to District of Columbia residents and enlarging the universe of qualified apprenticeship applicants in the District." The development and negotiation of a project labor agreement appears to be in connection with the baseball stadium construction project and as such would not directly involve the Department of Employment Services (DOES). The Auditor has been advised that DOES would not be a party to the project labor agreement and, although the PLA may include some requirements regarding apprenticeship programs, it is unrelated to the scope of services set forth in the contract. DOES has paid Ms. Brunner approximately $8,667 for work performed between June and September 2004. At the beginning of fiscal year 2005, a Memorandum of Understanding between the Office of the City Administrator and the DOES Director was developed to enable DOES to transfer funds to the City Administrator's Office "to underwrite the services of Jane Brunner." On March 22, 2005, this undated MOU was signed only by the Director of DOES, and was accompanied by an Intra-District Request Form executed by the DOES's CFO for which the transfer of $60,000 to the Office of the City Administrator. The Auditor's review revealed that only $25,000 has actually been transferred to date to the Office of the City Administrator. Moreover, there is no evidence that these funds have been used to pay approximately $29,000 in invoices submitted by Ms. Brunner principally for work related to the PLA, and if paid the Auditor has not been provided any documentation identifying the source of funds used to make any payments in fiscal year, 2005. All finds used to date to underwrite the cost of Ms. Brunner's services and expenses have been local funds. III. Services Procured From the Phoenix Consulting Group/ Ira SockowitzThe Phoenix Consulting Group/Ira Sockowitz was issued three purchase orders during fiscal year 2004 on 9/2/2004, 9/28/2004, and 10/8/2004, to perform services in connection with the Mayor's trip to China. The three purchase orders together totaled $26,500. The Auditor found that the purchase orders issued to this contractor were intentionally split to avoid the $25,000 threshold which required at least three written quotations from other vendors. Further, the Auditor found that no Determination and Findings Statement was prepared to justify the sole source non-competitive award of work to this contractor. In fact, the same Statement of Work used for the Lily Hu and Melinda Yee Franklin services was also used to support work performed by the Phoenix Group. This contractor was also responsible for overseeing the other contractors. The "Statement of Work" was unsigned, undated with no contract administrator or contracting officer identified, and no payment terms or conditions set forth therein. In addition to the three purchase orders noted above, the Office of the Mayor issued the Phoenix Consulting Group a $75,000 purchase order for consulting on October 22, 2004. The work performed appears to have been related to the Executive Branch's "war room" and baseball legislative strategy and priorities handled through "the war room." The contractor was paid the entire $75,000 through three checks as follows: $45,000 by check dated November 26, 2004, $15,000 by check dated December 21, 2004, and $15,000 by check dated February 3, 2005. All invoices for payment were approved by the Mayor's Chief of Staff. The Office of Contracting and Procurement cannot locate the contract file for this transaction, thus the Auditor has been unable to determine whether these services were under a sole source noncompetitive arrangement or whether a competitive process was used. IV. Services Procured From Strategic Advisory Group, LLCThe Office of the Deputy Mayor for Economic Development awarded a one-year $300,000 sole source non-competitive contract to Strategic Advisory Group LLC through OCP on January 10, 2003 to provide professional services for baseball due diligence. Between August 2003 and January 2005 the contract period was twice extended and the original $300,000 not to exceed ceiling was increased by a total of $677,000 to $977,000 which is $23,000 short of the $1 million threshold requiring Council approval. SUMMARYThe regularity with which sole source non-competitive agreements that generally do not comply with applicable procurement and contracting laws and regulations are used by the Executive e Office of the Mayor and Office of the City Administrator in addition to the fact that the Office of the City Administrator has influenced the selection of individuals from Oakland, California to perform consulting services under these agreements raises questions about the integrity and fairness of the process and the transactions. Section 1800.1 of the District Personnel Manual states that "Employees of the District government shall at all times maintain a high level of ethical conduct in connection with the performance of official duties, and shall refrain from taking, ordering, or participating in any official action which would adversely affect the confidence of the public in the integrity of the District government." Further, Section 1800.2 states that: "The maintenance of unusually high standards of honesty, integrity, impartiality, and conduct by employees is essential to assure the proper performance of government business and the maintenance of confidence by citizens in their government". The Auditor's review revealed that the deviations noted in my testimony today occurred in part for the following reasons:
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