State auditor finds Rockwood overpaid construction company by $1.2 million

Missouri State Auditor Tom Schweich on Feb. 27 rated the Rockwood School District “fair” on a scale of excellent, good, fair and poor at a presentation of audit findings for the year ended June 30, 2012.

Schweich said the rating “means that we found several findings that require management’s immediate attention, but we did not find any fraud, any criminal conduct or the very serious violations that would result in a poor rating.”

Schweich said the “most serious finding” was $1.2 million in overpayments to Glenn Construction Co., which has almost exclusively managed the district’s bond construction projects for the past 20 years, for work related to the last four bond issues going back to 2003.

“The contracts were ambiguous,” Schweich said, “but it does appear that there was double payment for some of the work to the amount of $1.2 million over the four bond issues.”

Schweich said the audit also found “significant issues with change orders” that were approved without a competitive bidding process.

For example, the audit found 36 change orders for work completed at Marquette High from 2010-2012 totaling $1.8 million.

“Many of these projects should have been bid out,” said Schweich.

Schweich then addressed the conflict of interest of Rockwood School Board Director Steve Smith, who was employed by Glenn Construction Co., when he was appointed to the Board in May 2010. The audit found that Smith voted for 12 projects approved from January 2011 to June 2012 that resulted in more than $189,000 in fees to Glenn Construction Co.

The Board has disputed this piece of the audit’s finding, stating that two Missouri School Board Association attorneys found “no legal conflict” in Smith voting for these change orders. But Schweich disagreed.

“We think, very clearly, that if somebody is approving change orders that will result in fees going to their company that is a conflict of interest under state law,” he said.

Schweich said the relationship with Glenn Construction Co. “was the principal problem, because it involves tens of millions of bond issue dollars and we believe a lot of money could have been saved had the issue been handled appropriately.”

In fact, Schweich said the district’s rating would have been higher had it not been for this issue.

The audit found the district often hired professional contractors without a competitive bidding process. It singled out the controversial hiring of two former colleagues of Superintendent Bruce Borchers in October 2010 at a cost of more than $60,000.

Schweich said “competition results in lower prices.”

“That’s the way it happens in the private sector,” he said. “We believe that’s the way it should happen in the public sector, as well.”

He also addressed Rockwood’s management of district-issued credit cards. The audit found more than 19 percent of employees have district credit cards, with limits ranging from under $1,000 to $1.5 million. Some employees had been issued more than one card and the master list was not accurate.

“There’s a lot of potential for mischief when a lot of credit cards are given out to people when there are very high limits,” said Schweich.

The audit criticized the district for not issuing receipts for money coming in and out of many departments and programs, inadequate documentation of district property, problems with attendance reporting controls and a misrepresentation of the superintendent’s contract which shows a provision for $150,000 in life insurance while district records show a $500,000 life insurance policy. Schweich said this was a “misunderstanding,” and that the $500,000 policy simply has to be correctly reported in the contract.

Schweich said he would return to the district in 90 days to see how well the audit’s recommendations are being implemented. He repeatedly praised the district for its cooperative attitude and said district officials have “agreed to fully implement, I would say, 90-95 percent of what we’ve recommended.”

In a written statement, Board President Janet Strate said the Board has already begun to implement several of the recommendations in the audit.

“We realize that we have made some mistakes in the past, and we want to apologize to our community for those,” Strate wrote. “We take responsibility for our actions and genuinely regret the problems caused by them. I assure you we are taking steps to improve our practices and procedures and to ensure we do not make the same mistakes in the future.”

In a Q&A session, Rob Thoele, a Rockwood parent who lives in Ballwin, said he was “shocked” at the findings.

“I don’t have a lot of confidence that things are going to change,” Thoele said.

Eileen Terrell, co-founder of Rockwood Stakeholders for Real Solutions – the group that has publicly criticized the district’s handling of finances and, particularly, conflict of interest issues surrounding Glenn Construction Co. – asked Schweich about recouping the $1.2 million in overpayments to Glenn.

“There’s no doubt the company was paid twice,” Schweich explained. “But it’s not clear whether the contract was worded tightly enough to recoup the money.”

After the presentation, Borchers said he welcomed the three-month follow-up.

“We’re looking forward to that 90-day check in, because we want to show our community that we’re going to respond and we are truly going to get better,” Borchers said.

“Now the ball’s in the their court,” said Tyrell. “They’ve lost the entire trust of the community and they have to build it back.”