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Unofficial fund skirted city rules

The Baltimore Sun

The Baltimore Fire Department made more than $250,000 in unauthorized purchases through an off-the-books account maintained for years with a major supply company, according to detailed financial reports and invoices.

City and federal funds intended for purchases from Draeger Safety Inc. were held in the account to help pay for unapproved equipment for the department, records obtained by The Sun show. City officials were unaware of the changes, which shifted money from transactions for air masks and related equipment.

There is no indication that the account was used for anything but fire-related equipment; purchases over a five-year period included thermal-imaging cameras, hazardous-materials meters and a public address system for the fire academy, records show.

But auditors say the account circumvented rules designed to protect taxpayers' money by ensuring that governments get precisely what they pay for - and by providing levels of oversight.

"If [the Fire Department was] in business for themselves, they'd have some flexibility, but this is taxpayer money," Bruce A. Myers, auditor for the Maryland legislature, said after the account was described to him. "Why are they above the rules?"

City Hall officials promised an investigation, saying the practice violates city procurement regulations. "This is not the way we do business," said Edward J. Gallagher, director of finance.

Fire Chief William J. Goodwin Jr. said he believed that the account started in 2000 but was limited, legitimate and had ended years ago. "It appears that this was a continuation of a practice that just seemed to be accepted in the late 1990s into early 2000 to 2001," said Goodwin, a veteran firefighter who became chief in 2002.

Goodwin said that the account still holds a balance of about $2,600 and that he wants the money returned to the department's account with the city.

The Fire Department is still recovering from a training fire in February that killed a cadet, violated dozens of national safety standards and brought unwelcome scrutiny to an agency once heralded as among the best in the nation. Goodwin's leadership of the department is being questioned by rank-and-file firefighters, and he has received only lukewarm support from the mayor.

Records indicate that the account - used for major transactions at least until September 2005 - was directed by a low-level official in the department's fire academy with the knowledge of Draeger, a Germany-based manufacturer of fire and mining safety equipment.

The firefighter, Douglas V. Campbell, says he did nothing wrong and worked for the benefit of the Fire Department. He most recently was assigned as the head of the air mask repair office at the fire academy on Pulaski Highway.

Campbell was one of the eight supply coordinators who recommend equipment purchases to the fire department's finance section, which then asks the city for money to pay for those purchases out of the department's budget.

Beginning six years ago, Campbell started to buy items for the department from Draeger, a sole-source supplier for breathing equipment, without going through the normal procurement system.

He used the account to make at least 35 unauthorized purchases - including 15 purchases of more than $5,000 that would have required approval by a city spending panel. Even the smaller purchases should have been approved either by the city purchasing agent or the Fire Department's finance department. None was, according to documents.

In total, the Fire Department spent at least $257,578.72 without city approval, documents show. The largest unapproved purchase was $52,499.97 for nine thermal-imaging cameras.

But he also directed Draeger to buy items for the Fire Department from other vendors, including an $11,294.91 public address system installed at the academy, folding tables and chairs for $3,876.50 and space heaters for $572.

Campbell used what city officials now say, and records show, was a nonstandard purchase order number and a private ledger to track his transactions. The purchase order number, which does not conform to city naming standards, was P-6720-DVC - the numbers of the address of the fire academy, 6720 Pulaski Highway, and Campbell's initials.

To pay for the purchases, Campbell tapped a source of city funds that Baltimore officials say they didn't know about: a kind of revolving bank account maintained by Draeger.

Draeger held on to funds left over from authorized city purchases that were not delivered. The account also included equipment rebates, discounts and returns. When Campbell wanted to buy something, Draeger debited the account.

Draeger, which has done business with the city for 20 years, says it viewed that money as credits the city could use for purchases, not refundable cash.

"At the specific request of authorized representatives of the BFD, these discounts and rebates were held as credits and applied for the purchase of future fire safety and related equipment," said Graeme A. Roberts, the vice president and chief financial officer for Draeger's North America operation, based in Pittsburgh.

He also said: "The credit and rebate arrangement is not unique to the BFD and benefited the City of Baltimore and the BFD because they received Draeger products at a discount off of standard list prices."

But Draeger would not answer questions about specific transactions, citing its "client confidentiality obligation," nor discuss who in the fire department authorized the arrangement.

Campbell made only a brief comment in a May meeting with a reporter. "A lot of the stuff isn't what you think it is," he said. "If I thought it was anything illegal, I wouldn't have written it down. There was no personal gain. ... The only people who benefited were the Fire Department."

He said Thursday that he would like to discuss the account further but has been instructed by fire officials not to say anything. The 59-year-old Campbell is scheduled to retire at the end of this month.

Chief Goodwin said in May that "based on the records we have been able to obtain ... it is apparent that no member of the BCFD personally benefited from this account."

He added Friday in a statement, "The department did not benefit by using with malice taxpayer funds coming directly from the city's treasury."

Campbell's "actions at this point seem to be inappropriate albeit done with the best interests of the department in mind," Goodwin said in the statement. "At the end of the day, the fire department ended up with around $250,000 worth of supplies it needed, mostly from credits and rebates the city would have not otherwise received. That still does not make it right, however."

Auditors say the account sidestepped standard budgeting practices.

"You've got a budget, you've got a process, you've got people giving out taxpayer money for different purposes," said Myers, the auditor for the Maryland legislature. "The system can't work if everyone would take this kind of liberal approach. If everyone did this, it would defeat the whole purpose of electing officials to pass the budget."

He added: "I'm sure there are a lot of places in the city that could use a quarter-million dollars."

Brian J. Rowe, who worked as the Baltimore County auditor for 12 years, also found the account problematic.

"That is misleading the elected officials who have a responsibility to make sure funds are only appropriated for things that are needed," he said. "When you set your budget, you are setting your priorities. That is the whole idea of having a budget."

The Sun obtained documents that detail many of the transactions handled through the account. They include a copy of Campbell's handwritten ledger from 2001 to 2005, which he acknowledged being his, and 85 additional pages of memos, credit notices and invoices - most of it on Draeger letterhead. Much of the communication is between Campbell and Draeger's Bob Sterner, who has since left the company.

The ledger is meticulous in its accounting. Purchase order numbers and invoice numbers are carefully noted next to credits in the account, and supporting documents match ledger entries.

Draeger has confirmed the authenticity of many of those supporting documents. Sterner could not be reached for comment.

The records show that Campbell and Draeger conferred regularly about what to do with public money. In September 2003, for example, Campbell asked Draeger to quote a price for breathing equipment to outfit the department's Special Operations Section, a group that responds to hazardous material spills and other emergencies. That equipment list totaled $125,000, and the Board of Estimates - chaired by the mayor - approved using federal homeland security money to buy the goods. The city wrote a check for that amount to Draeger.

But the Fire Department bought only $102,000 worth of equipment in that transaction. In addition, Draeger gave the department a $10,000 rebate.

The changes lowered the cost of the purchase by more than $34,000. Draeger's Sterner later faxed Campbell a memo: "Doug, as discussed, I am adding $34,157.75 to your account."

City procurement rules require that any rebates or discounts be applied to the final price before a check is cut, and any extra money at the end of a transaction be returned to the department's budget. Money left over after a purchase cannot be spent by an agency, or an employee, without going through the procurement process.

Goodwin could not explain why anyone in his department would go outside normal procedures. "In a perfect world, more flexibility in purchasing would be great for any department," he said. "I think especially the public safety departments. But, obviously, these procedures are in place for a reason and must be followed."

After inquiries by The Sun, fire officials searched Campbell's office looking for his ledger and financial records, and did not find them. Rick Binetti, a Fire Department spokesman, said Campbell told officials he threw away the documents.

Goodwin said he does not know how many people in the department were aware of the off-the-books fund.

"It looks as though it was maintained under the leadership of several different commands at the Fire Academy," he said in a statement last month. "Doug Campbell was in charge of the Air Mask Supply. This does not mean he was the only person who made decisions on what supplies or purchases were needed."

Since Goodwin left the fire academy to become chief in 2002, five other men have headed the academy: Dennis Howell, Reginald L. Session, Edward J. Cooper, Kenneth B. Hyde Sr. and Joseph Brocato. None would comment.

Draeger began supplying the city with safety equipment about 20 years ago and since 2001 has sold at least $3.5 million worth of equipment to various city agencies.

As head of the air mask office in the fire academy, Campbell was the department's liaison with the company. The relationship grew close.

Two years ago, Campbell accepted a $1,500 trip to Germany paid for by Draeger, and recorded that fact on an ethics disclosure form filed with the city. He was part of a group of representatives from American and Canadian fire departments who were members of the company's "user group," which assesses and recommends "new ideas and improvements of products used in the fire service," according to Draeger's Roberts.

The group toured the Draeger factory in Luebeck, Roberts said, and attended a fire trade show in Duesseldorf.

Campbell is quoted in a testimonial on the company Web site. It highlights the role Draeger played in marshaling equipment to help the department fight the 2001 Howard Street Tunnel fire and stresses the company's role in training city firefighters:

"Baltimore City Fire Department is called out, and Doug Campbell immediately contacts Jeff Fleming, who activates the Draeger Emergency Response Program without delay," the Web site says. "Once at the tunnel, they find the emergency services battling their way through the tunnel, the firefighters wearing Draeger" masks.

A year before the fire, the city entered into an unusual contract with Draeger - the start of what would become the unauthorized account. Goodwin said that while he was head of the fire academy, the department needed to quickly buy different breathing equipment to comply with new federal standards.

The city agreed to pay $464,000 in advance. Draeger, however, needed 12 to 18 months to supply the equipment. Meanwhile, the money accrued interest, according to a Draeger memo on file with the department's finance department.

By the time Draeger had the air masks ready, the city had closed seven fire stations and needed 35 to 40 fewer masks, Goodwin said. That left a balance of about $35,000.

Goodwin initially said he believed that Draeger was instructed to keep that balance and that the Fire Department used the money to buy furniture for paramedics' classrooms. "I always figured the department simply bought down the remaining credit to purchase items it was in need of," including "desperately needed" furniture for paramedics' classrooms.

But on Friday, Goodwin said that the $35,000 had been appropriately used to buy air mask equipment approved by the city. Seed money for the off-the-books account likely came from interest accrued on the $464,000 and was used to buy the furniture, he said.

Either way, the account grew through other transactions.

Draeger, responding to the Fire Department's questions about the account, provided a summary of how the money accumulated: $74,000 from returned products, $108,000 from what the company now calls "discounts and rebates," $5,300 from interest payments and $67,000 from city payments.

The returns included roughly $54,000 for old air masks and $13,000 for flashing gauges, equipment used to alert firefighters if an air tank is depleted.

In one case, documents show, the Baltimore Police Department purchased almost $1 million in air masks from Draeger using homeland security funds. Draeger credited the account controlled by Campbell with $64,000 in "commissions," despite the fact that it was a Police Department order.

Draeger would not explain why that account benefited, but the company cast the transaction in new terms. "The term 'commission' sometimes used on invoices was a misnomer and was intended to mean rebate," said Roberts.

The account generally was used to buy Draeger equipment.

Sometimes, though, Draeger used outside vendors to make purchases for the Fire Department. For example, in March 2003, it bought $520 space heaters for the fire academy from an Illinois office of Grainger Industrial Supply. Draeger added a 10 percent fee, according to a memo from a Draeger salesman to Campbell: "Doug, please find attached the two invoices from Grainger. With your permission, I will add 10% for our handling and so on and credit your account."

In another instance, Draeger purchased $3,100 worth of tables and chairs from Mark Downs Furniture in Cockeysville, and charged the Fire Department $3,800.

annie.linskey@baltsun.com

To view documents, go to baltimoresun.com/bfdspending

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