Audit faults highway agency dealings with contractors

A top manager at the State Highway Administration apparently solicited funds from contractors for a golf tournament in which he had a financial stake — and then expedited awards to some of the same companies.

Another senior official retired from the agency and 12 days later took a job with a construction management firm that benefited from a $16 million procurement he helped arrange while he was still with the highway administration.

These are among the findings of a scathing report released Friday by the state Office of Legislative Audits that identifies multiple potential violations of ethics laws and the agency's own rules.

The violations were serious enough that the auditors referred the matter to the state attorney general's office for potential criminal investigation. David Paulson, a spokesman for Attorney General Douglas F. Gansler, said the office "will be reviewing the audit."

The report casts a critical eye on the revolving door between the agency, which has one of the largest budgets in Maryland state government, and a small group of companies that routinely compete for lucrative highway contracts.

The audit's release comes one day after the retirement of Neil J. Pedersen, who had headed the SHA for eight years. In an interview last month when his retirement was announced, Pedersen said his decision to leave state government at age 60 was for personal reasons unrelated to the audit's findings.

However, acknowledging that a critical audit was expected, Pedersen said at the time that some top officials at the agency had let him down. According to the Transportation Department, Pedersen was traveling Friday and was not available to comment. He remains on the agency payroll as a consultant on the Intercounty Connector project.

The investigation was launched, the report said, after the auditors received a tip on a waste, fraud and abuse hotline.

State Transportation Secretary Beverley K. Swaim-Staley said in an interview that she was "very disappointed" in the findings about the SHA, one of six agencies that make up her department. She said the lapses were a result of "people not following the rules."

"It's not acceptable," she said. "There's no excuse for not following these standard state policies and procedures."

The transportation chief said she had asked Deputy Secretary Darrell B. Mobley, who took over as acting highway administrator Friday, to conduct a thorough review of the actions of all high-ranking SHA managers. She said she had also directed the top officials of the other five transportation agencies to make sure procedures are in place to prevent similar abuses in their offices.

State Sen. James C. Rosapepe, who chairs the General Assembly's Joint Audit Committee, said he was "fairly shocked" by the charges. He said his panel would discuss the report and decide whether to hold a hearing before its regular December audit review.

"It reflects the inherent problem of the revolving door with state agencies, and it's been true of the SHA for decades, and it's been true of other agencies where people go back and forth between agencies and contractors for the agency," the Prince George's County Democrat said.

Rosapepe said the problem was especially acute at the SHA because it has so much money to spend — the bulk of it in contracts with private companies. For the budget year that started Friday, the SHA has a combined operating and capital budget of more than $950 million.

The report portrays a cozy relationship between highway officials and the contractors who carry out the bulk of the department's work. In some cases, auditors found, employees have left high-ranking jobs at the SHA only to be employed by agency contractors a short time afterward.

In one case, the audit said, a senior employee in the agency's Office of Construction, who was the part-owner of a company that promoted sports events, appeared to have solicited companies that do business with the agency to sponsor a golf tournament in which he had a business interest. The report said the companies gave amounts ranging from $250 to $2,500.

The report said that finding was significant because five of those firms had active contracts with the agency as of the end of last year — awarded, at least in part, by the office the manager supervised. Swaim-Staley said that the official is no longer on the payroll and indicated that he was terminated.

As is standard in legislative audits, the names of individuals and companies involved in questionable activities were not disclosed in the report.

James Hagerty, now retired after 32 years with the agency, said he worked in the construction office and brought the golf tournament sponsorships to the attention of the auditors several years ago. He said that after raising concerns about the supervisor's activities, he was the target of job retaliation.

"They ended up sending me down to Montgomery County on night duty," said Hagerty, a former engineering document reviewer in the construction office.

The report does not say Pedersen was involved in any questionable activities. Swaim-Staley said that "from [her] perspective, he is not stepping down because of this audit."

Hagerty said Pedersen was "operating above it all." He said that before he called the hot line, he had sent information on possible violations to the administrator's office only to have supervisors threaten to fire him for doing so.

Jack Cahalan, a Transportation Department spokesman, said the way Pedersen handled internal complaints is one of the questions Mobley will look into.

The auditors said they are continuing to investigate the diversion of contract money at the agency and will soon issue another report on subsequent findings.

In addition to the golf sponsorships, the auditors identified a series of "questionable" SHA activities:

•Before leaving the SHA's employ, a senior manager approved a decision to use an outside firm to provide construction management rather than have employees do the job — the first time the agency had done so. Twelve days after the manager retired in December 2008, he was hired by the company that received the $16 million contract. Auditors said that could violate ethics rules requiring former employees not to have an interest in an SHA consultant contract for a full year after leaving the agency payroll.

•Subsequently, the same manager agreed to a request by an SHA employee that he submit bills under that contract for work performed under another contract in a different part of the state.

•The highway administration failed to make sure that contractors complied with state laws and agency policies on employment of former SHA employees. In some cases, firms "actively promoted" the hiring of former SHA employees in bid submissions.

•Agency officials circumvented the SHA's own processes in evaluating the bids for two $16 million contracts in late 2008. The report said officials failed to score the competing bids on 10 out of 14 categories, potentially altering the outcome of the contract award.

•In awarding that work, the process under which contract awards are reviewed by an independent screening committee was "compromised." It said two of the four screeners were not officially designated to serve on the committee and had been involved in the original evaluation process.

•SHA officials asked the two firms that received the $16 million contracts — both of which had been golf tournament sponsors — to move money from those jobs to conceal overspending on other projects. That, auditors said, thwarted oversight by the Board of Public Works. In one case, according to the report, the manager who solicited the sponsorships asked another SHA employee whether it was possible to "rob some funds" to move $60,000 from one contract to another.

In its reply, the Transportation Department disputed none of the auditors' findings. It said work was halted on the contracts in question earlier this year.

Swaim-Staley said companies that broke state rules could lose their contracts.

"If contractors are not following procedures, we will have to make a determination about the future of the work we do with them and can do with them," she said.


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